Derivatives and structured products have become mainstream financial products and are no longer just the preserve of sophisticated, institutional investors. Avaloq’s global client base of banks and wealth managers are now dealing with these products on a daily basis for their clients. As such, it is vital that Avaloq’s own product suite is able to accommodate their use and help Avaloq’s clients capitalize on this market normalization.
Case study – European private bank
A private bank discovered that the equity exposure of many of its clients' portfolios was too high due to the unattractive interest rate environment. As a result, the portfolio risk was higher than the client's risk profile would allow in many cases. The bank also noticed that the ratio of structured products in client portfolios was lower than the market average. The bank approached Derivative Partners and asked the company to bring more transparency to its clients’ portfolios. The bank’s objectives were to:
- support client advisers during the sales process for structured products;
- support client advisers with the management of their product portfolios;
- ensure that the risks of the client portfolios correspond to the clients’ risk profiles;
- increase the share of structured products in client portfolios.
Together with the bank’s product management, Derivative Partners defined and implemented a client-specific lifecycle monitoring service in combination with an alerting system. The solution covers the following key figures:
- Product redemption dates
- Barrier-hit probability
- Knock-out probability
- Autocall probability
- Risk figures/VaR
- Yield estimations
The service was implemented in under two months. Shortly after the lifecycle monitoring service was introduced, the bank recorded an increase in the sale of structured products. Key benefits for the bank include:
- a more efficient sales process thanks to re-investment and switch proposals;
- transparency over the whole portfolio of structured products for both client advisers and sales officers;
- control of portfolio risks – ongoing and documented;
- higher sales revenues and ratio of structured products in client portfolios.