Wealthiest People Buy Least Structured Products, Study Shows
By - Nov 11, 2010
The wealthiest investors in the U.S. put less of their holdings into structured products than the less affluent, according to a study commissioned by the Securities Industry and Financial Markets Association.
Individuals with more than $5 million in assets allocated 0.41 percent of their investments to structured products last year, data from the study show. For those with less than $250,000, that proportion was 1.33 percent. Investors with $250,000 to $1 million put 1.53 percent of their holdings in the products, the most of any group.
Structured products, which are debt bundled with derivatives, are marketed as an alternative way to bet on stocks and interest rates and manage risk. Wealthy investors prefer to “cut out the middleman” by trading the components separately, said Lawrence Weinman, an investment adviser in Los Angeles.
“The smaller the asset base, the more likely the investor works with people who are just trying to sell them certain products,” said Weinman, a former institutional derivatives salesman at Paris-based bank Societe Generale SA. Brokers often earn higher fees on structured products than stocks or mutual funds, he said.
The study, released Nov. 1 by the New York-based trade group, included data submitted by 17 brokerages on 38.2 million investors, about a third of U.S. households. Andrew DeSouza, a Sifma spokesman, provided additional data in an e-mail. Sifma commissioned Oliver Wyman, a New York-based consulting company, to evaluate the impact of applying a fiduciary duty to brokers.
Clients’ Interests
Brokers are now required to offer clients “suitable” investments, while investment advisers have a fiduciary duty to put clients’ financial interests first. In January, the U.S. Securities and Exchange Commission will finish its study of a uniform standard for brokers and advisers. The agency was required to consider the rule change by the Dodd-Frank financial regulation law.
People with $1 million to $5 million in assets had 0.73 percent of their investments in the securities, the study showed. Individuals in the study held $70.4 billion of structured products overall, or about $1,800 each.
U.S. investors bought a record $42.4 billion of structured notes this year, according to data compiled by Bloomberg. Morgan Stanley issued $10.1 billion, the most of any bank. Bank of America Corp. issued $7.9 billion, the second-most.
Individuals with more than $5 million in assets allocated 0.41 percent of their investments to structured products last year, data from the study show. For those with less than $250,000, that proportion was 1.33 percent. Investors with $250,000 to $1 million put 1.53 percent of their holdings in the products, the most of any group.
Structured products, which are debt bundled with derivatives, are marketed as an alternative way to bet on stocks and interest rates and manage risk. Wealthy investors prefer to “cut out the middleman” by trading the components separately, said Lawrence Weinman, an investment adviser in Los Angeles.
“The smaller the asset base, the more likely the investor works with people who are just trying to sell them certain products,” said Weinman, a former institutional derivatives salesman at Paris-based bank Societe Generale SA. Brokers often earn higher fees on structured products than stocks or mutual funds, he said.
The study, released Nov. 1 by the New York-based trade group, included data submitted by 17 brokerages on 38.2 million investors, about a third of U.S. households. Andrew DeSouza, a Sifma spokesman, provided additional data in an e-mail. Sifma commissioned Oliver Wyman, a New York-based consulting company, to evaluate the impact of applying a fiduciary duty to brokers.
Clients’ Interests
Brokers are now required to offer clients “suitable” investments, while investment advisers have a fiduciary duty to put clients’ financial interests first. In January, the U.S. Securities and Exchange Commission will finish its study of a uniform standard for brokers and advisers. The agency was required to consider the rule change by the Dodd-Frank financial regulation law.
People with $1 million to $5 million in assets had 0.73 percent of their investments in the securities, the study showed. Individuals in the study held $70.4 billion of structured products overall, or about $1,800 each.
U.S. investors bought a record $42.4 billion of structured notes this year, according to data compiled by Bloomberg. Morgan Stanley issued $10.1 billion, the most of any bank. Bank of America Corp. issued $7.9 billion, the second-most.
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