In many ways, structured products are a solution that to a problem that flies under the radar of most investors and advisors: How to combine the income-generating benefits of bonds with the higher potential returns of stocks−while offering a degree of downside protection.
Issued and underwritten by large investment banks, structured products are available in many forms, with terms ranging from a few months to several years. But what they all share in common is that returns are based on the performance of an underlying derivative tied to a specific stock or basket of stocks or an index such as the S&P 500.
With structured CDs, the interest rate rises or falls with the value of the underlying asset. Structured notes are issued with a fixed coupon rate, like a bond, but at maturity the value of returned principal may increase if the price of the underlying asset has risen. Most structured products cap returns, and many offer principal protection benefits that limit the amount of money an investor can lose if the price of the underlying asset plummets.
While this may sound straightforward, in reality, the variety and complexity of these products and the lack of centralized resources to learn about and research them has prevented their widespread adoption by advisors and investors.
But this situation may change, driven by retiring baby boomers. With most of their retirement assets invested in bonds to generate income, many are asking their advisors for ways to gain exposure to the potentially higher returns of stocks without having to risk significant losses. For some, structured products may offer a suitable solution.
However, there are a number of challenges facing advisors who wish to offer structured products to their clients. First, there is a significant learning curve for advisors to understand the many different product types and become certified to offer them to clients. Second, it’s not easy for advisors to find information on the hundreds of different products that are issued each month. Third, most firms don’t have educational resources to explain the benefits and risks of these products to clients. And, finally, many independent broker/dealers and RIA firms don’t have access to technologies that make it easy to evaluate, research, order and monitor these products.
To address these issues, Luma Financial Technologies offers Luma, a comprehensive, customizable software platform that provides the resources and functionality broker/dealers, wealth managers and RIA firms need to educate themselves and their clients on structured products, research available offerings, and purchase them for clients.
When an advisor logs into Luma, they start at a personalized dashboard that displays their business activity and learning requirements. From there they have access to four different modules.
The Learning Center
Here advisors can access firm-approved educational videos, presentations and study guides to build their knowledge of different structured product categories. Luma can work with your firm’s compliance department to create multiple training paths and administer knowledge tests that certify each advisor’s comprehension of the material as a step toward qualifying them to sell these products. The Learning Center also offers a wide range of client-facing educational materials and videos, all of which Luma can customize with your firm’s brand identity. Or you can replace any or all of them with your firm’s educational materials.
Product Marketplace
In this area, advisors can view, research and trade structured products offered by your firm. They can use a variety of filtering criteria to compare various products and determine their suitability for clients with different investment objectives and risk profiles. Each product listing offers links to detailed information and client-ready sales materials and term sheets. When advisors are ready to purchase a product for a client, they can use Luma’s order entry system to place trades to be executed through your firm’s brokerage platform.
Creation Hub
For advisors seeking to offer customized solutions, the Creation Hub enables them to design a product structure reflecting various criteria, including product type, underlying assets, coupon rates, term lengths, protection parameters and pricing. They then can automatically submit this request to more than a dozen leading issuers affiliated with Luma. From a single screen they can follow the status of these requests and download term sheets for any bids.
Lifecycle Manager
Once advisors have purchased products for clients, the Lifecycle Manager provides extensive post-sales and trade monitoring support. Advisors can access all available information for their products, including performance reports, educational pieces, documents and hypothetical return charts. They can also view a calendar listing maturity and call dates and scheduled income payments and receive alerts for these and other events.
Designed to Meet Your Business Needs
The Luma Financial Technologies team will work closely with your firm’s IT and backoffice personnel to understand your unique business and requirements and ensure that your firm’s Luma configuration seamlessly integrates with your firm’s workflows. We’ll also work closely with your HR and compliance teams to implement training programs that will qualify advisors to sell structured products and use the Luma platform to streamline their sales processes.
To learn more about Luma, visit lumafintech.com.
