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Extending Your Toolset to Master the Challenges of Negative Interest Rates

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June 1st, 2019


Learning, Themes


Andreas Bezner

Despite the occasional hiccup, in the markets the music still plays

Many financial advisors and wealth managers have had a pretty decent run for more than a decade in the longest bull market in history. Their clients enjoyed good investment returns and did not even have to resort to some fancy products to achieve this. Mostly, long-only mutual funds and index trackers (for the more cost-conscious ones) would provide essential exposure to stocks and bond markets. Single stock picking would provide the ‘satellite’ part of a client portfolio and would reflect either the views of the financial advisor, or the preference of the client, or any combination thereof. For investors, this novel approach can result in almost equity-like returns with the volatility of traditional bond investments. The distinctive characteristics of this segment also tend to make for little correlation to traditional stocks and bonds, therefore providing additional diversification benefits to the existing portfolio.

Some advisors and their clients have gradually shifted to riskier investing

Low-interest rates and the ensuing quest for performance have increasingly skewed the risk profile of otherwise prudent and careful advisors and investors. Those who could only rely on plain-vanilla products have mostly been riding the equity bull market. M&A activity is in a frenzy, and people appear to be buying stuff they would not have looked at only a few years ago. Those with a broader tool-set have started dabbling in high yield corporate bonds.

Still, many clients are latently unhappy, and this may only partially have to do with the fact that the music, i.e., the market rally, will end one day. Trade wars could trigger a global recession; local conflicts in the Middle East could escalate and impact our economies. The fact that the European Central Bank has again lowered interest rates despite all the talk of overheating markets should give us pause. Maybe the occasional market crash while several European countries linger at the brink of bankruptcy could be the lesser evil.

Clients are latently unhappy, leaving financial intermediaries in a tricky position

All this leaves financial advisors caught between a rock and a hard place. For one, they know that significant market corrections in the past have often wiped out more than 60% off the value of traditional investments, such as stocks, commodities, or currencies. But by positioning a client portfolio defensively while most markets still rally they expose themselves to the criticism of their clients. Unfortunately, people worry more about missing out when others make money than about losing money. Most financial products offered by financial intermediaries are provided by their partner banks. This exposes financial advisors to uncomfortable questions about the independence of advice.

In addition, clients who do not recognize what makes their financial advisor special become more open to competitors. And finally, being more price-sensitive ultimately might lead them to jump ship to robo-advisors, which promise similar returns but at much lower fees.

What if you could play on a full set of keys?

What if financial intermediaries had a solution for their clients that would allow them to capture the market opportunities while at the same time being protected against a market down-turn?

What works for the most sophisticated institutional investors such as the Yale University endowment fund and the biggest pension funds should be good enough for their clients, right? Why not offer advanced investment solutions giving access to club deals, liquid alternatives, ventures, private equity, or private debt that will keep clients happy and justify the advisory fees? Such investments are known for attractive returns, relatively little risk, and for preserving wealth when stock and bond markets crash. Unfortunately, such investments have been hard to find, require a high initial investment, resulting in a sub-optimal diversification, and the paperwork is endless.

Why not offer a solution that is truly independent of a financial intermediary’s partner banks? What if they could not only easily fine-tune a client’s allocation thanks to low minimums but also brand the resulting product as their own?

Stableton’s marketplace for alternative investments enters the stage

Cost- and profit margin pressure from the bank’s management resulted in selective approvals of loans that were profitable to the banks, and easy to assess. Also, loan officers took significant career risk by approving non-mainstream loans. Finally, the big bank’s internal processes led to long approval cycles, which thwarted time-critical loan applications.

Innovation emerges from the ashes of the global financial crisis

Here’s were Stableton’s marketplace for alternative investments enters the equation. Its founders believe that everyone should have access to alternative asset classes. Products are available at a minimum investment starting at CHF 100, and customized portfolios start at CHF 500’000.

The Stableton marketplace brings together investors, financial intermediaries, investment managers, service providers, and startups. And here’s how it works:

  • Step one: A financial intermediary contacts Stableton Financial – book a meeting with us.

  • Step two: Stableton’s representatives facilitate and coordinate the onboarding in no time 

  • Step three: The financial intermediary provides their clients either access to existing products on the marketplace, or they can create their own white-labelled products there 

  • Step four: Once the financial advisor wants to complete the transaction, any product of the Stableton marketplace can then be bought via the client’s bank, and safely stored at a custodian bank of choice

Convenience, differentiation, sticky revenue

While financial intermediaries used to worry about disappointed clients and spent days researching investment ideas and products, they are now receiving relevant, interesting and targeted information, sophisticated investment ideas, and transaction support from Stableton. Stableton’s approach to the segment is to look beyond investment funds that indirectly allocate to securitized loan portfolios. Stableton prefers to partner directly with leading alternative lending platforms worldwide, with an initial focus on Switzerland, Germany, and selected countries in Europe that are operating at the forefront of the industry and applying stringent criteria. This gives us unprecedented transparency into their loan books and the opportunity to diversify our approach across loan segments, credit quality, security interest, ticket size, duration, etc.

Are you a financial intermediary or an independent wealth manager looking for a solution that combines sophisticated investments, ease of implementation, and the possibility to increase your revenue while making your client relationships even more sticky? Please contact your Stableton representative today.

Are you a private investor and wish to benefit from what Stableton has to offer? Please reach out to us or use this link to contact your financial intermediary and share this article about Stableton with them.

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