Investment Bridge chief takes aim at structured products' critics

Since first striking out on his own in 2011 with London-based structured products consultancy The Investment Bridge, chief executive Chris Taylor has identified four key areas where he can make an impact as a provider of industry advice - plain vanilla structuring, smart beta, and two mysterious areas that he terms "smart passive" and "smart alpha". Taylor says he intends improve upon both passive and active investing. His aim for smart alpha, for example, is "[to] identify the core drivers of alpha that are recognised as existing in the highest echelons of the active fund management world and use structuring to offer alternative ways not just of accessing that alpha but optimising it".

Following the launch of The Investment Bridge in 2011, Taylor has provided advice to issuers, distributors and - unusually - buy-side firms, including some prominent advisers and high-net-worth individuals. He says his unique professional background and the fact he is completely unattached from any issuers, distributors or buyers has allowed him to adopt this cross-bench position. "I'm independent of everyone in the industry. I'm even independent of the independents. So when I'm dealing with an advisory firm, I can help them identify products in the market or construct superior solutions and products," he says.

After spending eight years doing private client advisory work, Taylor joined HSBC's asset management arm, where he covered five areas, one of which was structuring, before moving on to Blue Sky Asset Management, a plan manager that was bought by US distributor Incapital in 2010. He feels this holistic background gives him a unique insight into the possibilities that structured products present. "I can engage with issuers in an open-architecture manner and potentially engage with independent firms if I believe they have an optimal relationship with an issuer or a product payout," he says.

Taylor welcomes recent regulatory developments in the UK and is a cheerleader for the changes brought about by the Retail Distribution Review. "Broadly, I'm very positive on everything the [Financial Conduct Authority] has done. It's worth highlighting that there hasn't been any bad industry news since 2008 in terms of product specifics. The media have gone relatively quiet on the structured products industry, which is partly a reflection of the fact that good news doesn't make good media, so there's been nothing to report," he says.

He is forthright about where he believes regulators should look next, however. Spreading the idea that structured products are a form of investing by contract is something of a personal project for Taylor. He has written widely on the issue and believes that the public perception of structured products will improve once people accept this view. "A lot of commentators - particularly detractors - focus on what's under the bonnet of a structured product in terms of derivatives," he says. "But investors aren't exposed to the derivatives. They are exposed to a contract. They are investing in a contract that precisely and legally and contractually defines exactly what they will get regardless of any investment process."

A lot of commentators focus on what's under the bonnet of a structured product in terms of derivatives. But investors aren't exposed to the derivatives. They are exposed to a contract

Enhancing the public's perception of the structured products industry is also the focus of his second recommendation. "The regulator should take an interest in regulated, authorised professional advisers making comments publicly that are flagrantly wrong," he says. "There was a prime example of this [recently] in CityWire, which published an article titled ‘Will the FCA ban structured products for retail investors?'"

The article was motivated by a regulatory move to ban contingent convertibles for retail investors owing to their complexity, and CityWire suggested that structured products might be the next thing to go. "Everyone in the industry told the publication there was absolutely no link and no logic to such a link. The last word of that comment was given to a regulated adviser, whose final words were: ‘Structured products deprive investors of their due returns if markets are good and deliver losses if markets are bad. They exist to make money for the manufacturer, nothing else.' It's not true in any respect."

Taylor sees a sharp discontinuity between the regulatory demands placed upon marketing documents and those made for public comments. Credit Suisse and Yorkshire Building Society were recently fined for prominently advertising overblown headline rates on promotional documents and Taylor argues that if issuers face fines for misleading customers then advisers making misleading comments should face the same treatment: "The regulator doesn't want sensationalist marketing, but it doesn't seem to mind sensationalist negative comments that are wrong and that misinform, misguide and mislead. There has to be a robust, objective middle ground. I feel this is an area that the regulator should focus on."

Both in his recommendations for the regulator and his plans for The Investment Bridge, Taylor is looking to turn the tables on structured products' detractors.