Deposit to gambling: what you need to know about structured products in banks

Russian banks increasingly offer their customers structured products — ready investment strategies that promise higher rates of return compared to Bank deposits. According to the Director of customer service “BCS Premier” Anton Grabarov, due to the fact that banks is getting harder to earn on lending and they seek to increase profits at the expense of commissions for selling structured products. Deputy Director of Department of development of products and services of the company “Alfa-Capital” Daniel Panin, however, notes that such proposals are actively interested in and the customers themselves, as the classic instruments deposits and bonds continue to decline.

From the point of view of yield structured products ahead of deposits. While the average annual rate on ruble deposits in the largest banks now is 7.44% per annum and on deposits in dollars and euros to 1.06 and 0.26% per annum respectively, structured products banks often predict (but not guarantee) profitability in 7-25% — this is evidenced by the results of a survey of banks of the top 10. However, unlike structural Deposit products available to a wide circle of customers: the entry threshold in the largest banks starts at an average of 100 thousand rubles, while for the premium customers have special offers costs from $100 thousand and above.

The principle of structural work products

A structural product is an investment instrument that is issued by a Bank and may be sold through a broker, managing or insurance company. Also, the Bank can sell structured products to its customers directly, explains the General Director of “Sputnik — capital Management” Alexander Losev. The basis of any such product is always a combination of different financial instruments, some of which will provide the buyer a fixed return (deposits and bonds), and the other part for extra income at the expense of some risky strategy, said Panin.

Most structured products are designed so that the investor is guaranteed a full refund of invested amount, but the income is not known in advance. “The main part of capital, for example 90%, is invested in a term Deposit or bond. The remaining 10% in more risky instruments, such as option on a certain asset which can bring significant income if the investment idea is implemented,” explains Graborov.

If expectations are not met and the risky asset will fall in price, the loss will be covered by income that will bring the bulk of the funds invested in deposits or bonds. According to this principle work program investment life insurance and structured notes with 100% capital protection — securities in which the investor actually invests most of the money in Deposit and the rest in the risky tool. For example, using the Bank sold structured products with BCS for three years with a return of capital. The customer can choose one of three underlying assets — the ETF index world medical, financial, or IT-market.

Sberbank, in turn, offers structural bonds, which are essentially the same structural notes. The first issue of these securities was in December of last year (underlying asset was the dollar), the second is expected soon. The maturity of the new issue shall be two years, risk-free piece of product you have on Deposit in savings Bank, as risky for the Depository receipts for shares of “Gazprom”. Thus, investors will make a profit only if the maturity of structural bonds receipts “Gazprom” will rise in price, specify in a press-service of Sberbank. The structural par value of one bond is 1000 rubles.

Despite the fact that the buyer of the structured product default allocates part of the funds on Deposit, this paper is not to be considered the analogue of the Bank Deposit. On the funds invested in the Deposit in structured notes, not covered by this warranty ASV, reminds Graborov. Also, learn in advance what the Deposit will be kept the money, the investor can not — this is controlled by the company.

“Closest-to-Deposit strategy with full capital protection, but yields in any case depends on the dynamics of the underlying asset”, — says the head of private banking, senior Vice President of VTB Dmitry Breitenbecher.

Barrier notes

Among structured products is a special category of tools which only risky investors. We are talking about barrier notes with conditional capital protection. When investing in these products, the return of all invested funds is not guaranteed because the investments of the investor are not divided into a riskless and a risky part. The entire amount is invested in a basket of assets: stocks, futures on precious metals, currency and other. If it works one of the barrier conditions, for example the price of one asset falls below the set under the agreement level, the note ceases to act, and the investor gets back is not money, but themselves are depreciating assets on the entire amount invested.

Moreover, depending on the terms of the notes, the investor can receive the assets at market price or slightly higher (so, for example, the investment strategy “alpha select”). In the worst case it will receive the assets at the price which was at the time of purchase of the notes, then losses due to the declines can be very large. Because if, for example, the share price fell two times compared with the price at the time of purchase of the notes, the investor will receive two times less shares than was purchased in the framework of the strategy.

“One of my clients had independently developed a note of well-known foreign Bank, and as a result has lost 95% of the funds invested in it. Realized market risk”, — cites the example of the consultant of the consulting company “the Personal capital” Dmitry Gerasimenko.

Such situations are not uncommon. Buyers are barrier notes, according to experts, often do not understand all of the details and associated risks, paying attention only to high forecast yield of paper. Therefore, before buying structured notes, you should carefully examine the prospectus in order to understand under which conditions capital will be maintained and when possible profit, or a loss. In addition, you must find out in advance the size of all commissions, which reduce the final yield, he said. For example, if a customer buys barrier note through a management company he will have to pay the management fee and the profit (“percentage of success”).

Policies the coli

Another structural product that banks actively sell to customers, is an investment life insurance (coli). Coli products are created by insurance companies and represent the cumulative policies with investment in various financial instruments. That is in addition to insurance services, the client receives the investment income. If the duration of the program with the insurer anything happens, the program terminates. The beneficiary (relative or heir) immediately receives the insurance payment, and at the end of the period — the full amount of investment with potential investment income, says head of research Frank Research Group in the segments of Affluent & Private Banking Love Prokopov.

The threshold of entry to these tools, according to her, the average is 100-300 thousand rubles, and programs designed for three years and more. The yield of the coli policies, estimates senior managing Director of Sberbank Maxim Chernin, on average, 3 percentage points higher than that of deposits. Meanwhile, rating Agency ACRES in its March review warned about a possible bubble in the market coli. According to analysts, the real yield of these products is lower than the state bankers, in the future, the growth of frustration of investors, this can lead to a shock situation on the insurance market. As mentioned earlier , in 2016, the sale of these instruments has increased significantly in Sberbank, Bank of Moscow and VTB 24 and Promsvyazbank and Alfa Bank.

Products for do

Bank customers can also purchase a special structured products in the investment strategies of trust management under the contract with the management company. The fiduciary account may be concluded with the customer directly in the Bank. The possibility is Sberbank, VTB, OTKRITIE Bank and Alfa-Bank. For example, clients of the savings Bank may enter into a contract with the UK “Sberbank asset Management” and invest in a strategy of “capital Protection”. The term of this strategy is two years, minimum amount — RUB 3 million, And customers of the Bank “Discovery” also can conclude the contract with the same management company. UK “Opening” offers the opportunity to invest in a strategy of “Linear”. The underlying asset in this case can be ETF on agriculture and IT-sector, as well as shares of several companies — Apple, Walt Disney, or Johnson & Johnson.

The barrier of entry for such programs — from 100 thousand rbl. to $100 thousand of the Commission, by a comparable with investing in mutual Funds, says Panin. For their services, companies take control of from 0.1 to 2% of assets per year. In some cases, companies also charge a Commission to buy an asset — for example, in “Alfa Capital” and “Sberbank asset Management” it is 3% of the transaction amount. In addition, managers may take a Commission of income — the so-called “percentage of success” (up to 20% of the profits). The promised yield of structured products, which are the basis of investstrategii UK, can reach 25% in foreign currency, but the risk in this case is the maximum. As follows from the letter to the wealthy client “BCS Premier” (have), such strategy involves buying a barrier of the notes in the fast-growing us stocks.

Advice to investors

The principal risks structured products with capital protection experts have called the risk of the counterparty. A Bank that produces a structural product that can not fulfill its obligations. “Here is the same situation as that of deposits: the depositor takes the risk, because the Bank can revoke the license, only investments in structured products, unlike deposits, are not insured by the ASV,” warns Graborov.

Themselves structured products are often incomprehensible to clients. “They actively sell the banks and asset managers, but, in my experience, people often make investments, not fully understanding all the details and risks. And the result is frustrated,” emphasizes Gerasimenko. It happened with a VIP depositors of the Bank “trust”, which bought credit notes Bank from 2007 to 2014. In December 2014, the Central Bank began the process of rehabilitation “Trust” and the Bank wrote off the money in the capital. Thus, two thousand people lost the opportunity to recover their money. Some investors still trying to seek payment through the courts.

Structured products may be profitable to sell the before the expiration. “If the investor sell the note prematurely, it will only return part of your investment,” explains Gerasimenko. For example, in the case of investment life insurance amount will depend on the time remaining until the end of the program, said Prokopov.

“If the program is for three years and the client need money, for example after a year, he can only return 60-70% of their money if the funds needed in two years — 70-85%,” — she said. The closer to the end of the program, the greater the redemption amount: if funding will be needed in the last year of validity of the insurance, the client will be able to return to 95% investments, said Prokopov.

The investor also assumes the risks associated with the volatility of currency notes Graborov. If the contract was a dollar, and the ruble suddenly strengthened, after it is possible to face a loss due to the difference of exchange. However, the reverse situation the investor, by contrast, will profit.

Dmitry Gerasimenko is convinced that buying structured products with full capital protection is impractical. The investor can implement the investment strategy, placing part of the funds on Deposit, and securities or currency. The financial result will be the same, the investor also saves on commissions, expert says.

Prokopov adds that the purchase of the structured product will not allow the investor to diversify investments. This will prevent the cost of the tool it is too high. “For example, the threshold input from the structural notes for the premium customer of the Bank — from $100 thousand Often, this may equal the whole amount of his savings, which completely eliminates the possibility of diversification”, — says the expert.

Alexander Losev also advises the investor to learn independently assess the structure of music. For example, if yield notes linked to a basket of several shares, you should carefully read the terms of the notes: the note may cease to act in case of negative dynamics is just one of the papers at any time before the end of the investment period. “The likelihood of decline in prices of shares of a particular stock for a long time horizon very high, and the buyer notes may be unable to obtain income for her,” explains Losev. In this regard, the financier recommends to carefully examine the structure of any notes and rate each company or underlying asset individually.