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FINANCIAL ADVISOR | CAIS Expands Structured Notes Menu on Advisor Platform

When it comes to structured products, evidently the more the merrier. That seems to be the case at CAIS, a New York City-based financial product platform for registered investment advisors and broker-dealers which today announced the expansion of its menu of structured products providers available to advisors.

The company says it has chosen J.P. Morgan, Morgan Stanley, RBC, and BNP Paribas to create a diversified, multi-issuer lineup of structured solutions. Structured products are just one part of CAIS’ overall platform that enables advisors to access a range of alternative products including hedge funds, private-equity funds, ’40 Act mutual funds, equity and debt syndicate, and precious metals.

Before today’s announcement, its structured solutions offerings consisted solely of products from Goldman Sachs. But CAIS co-founder and CEO Matt Brown says growing advisor demand for structured products compelled the company to expand its offerings in this space.

“CAIS felt the need to broaden its lineup of structured offerings and have more companies competing against each other to fill an advisor’s order, resulting in better execution and pricing to the end user,” he says.

Created by large financial institutions, structured notes are debt obligations packaged with derivatives, which are securities whose price derives from their underlying assets that can range from commodities and real estate to currencies and weather data, among other things.

The bond portion of a structured note, which typically consists of a zero-coupon bond and comprises the bulk of the note, provides principal protection. The derivative aims to provide a boost of potential upside to the bond’s expected fixed-rate return, and essentially enables investors to make a leveraged bet on markets they otherwise might not have access to.

As Brown explains, there are two types of structured note offerings. One is when a bank creates a product and makes it available in an off-the-shelf format. The other is when an advisor comes up with an idea of a structured product and needs someone to create the actual note for them.

“CAIS adds value because we take the advisor’s request for the intended note and ca have all of the different banks bid on filling that order, and the best price wins,” he says. “By having a more open-architecture platform, we’re allowing advisors to see different credits of the banks and the pricing they come up with to fill the orders.”

CAS doesn’t charge advisors to use its platform; rather, product providers pay it from the fees generated by the products that advisors use.

Terms on structured notes typically are between 18 to 72 months, and the principal is protected only when a note is held for the full term.

But derivatives can be risky, which means the structured note can underperform and perhaps lose money for investors even if they hold the note for its full term. As such both the SEC and FINRA consider these to be complex, high-risk products and have waved the yellow flag regarding investor suitability regarding principal protected structured notes.

Brown says CAIS’s expanded structured products menu includes more educational materials to help advisors make informed decisions regarding these investment vehicles. This includes making available educational materials provided by the banks that outline the different parameters of the securities themselves in order to bring more transparency to their structures.

“CAIS is a demand-based platform, and we’re seeing a lot of RIAs and broker-dealers effectively utilize structured notes — many plain-vanilla ways to get access to indices and the like,” Brown says. “But overall, we want to create a better forum for advisors to be able to access these products. We’re trying to lower the cost to advisors and increase transparency and education for advisors.”