It was in November of last year that Grupo Santander was finally given clearance by the UK's Financial Services Authority (FSA)
to buy the former building society turned bank, Abbey. Any doubts about how Santander could best use its new acquisition were quickly laid to rest by chief executive Francisco Gómez-Roldán when he used the announcement of the bank's results to outline his strategy. Structured products were to be an important part of the bank's offering, he said, and the bank would seek to improve its business among intermediaries, creating products especially for IFA (independent financial adviser) distribution.
According to Pak Chan, head of sales and marketing for investments at Abbey, the main worry surrounding the acquisition was its impact on the existing customer base. "The real concern leading up to the takeover was the potentially negative impact it might have on our actual business and on attitudes towards Abbey or our product lines," he says. The danger, he adds, is that some customers tend to be very sensitive to the bank's corporate outlook. "If they hear that we had made a loss, which happened a few years ago, they somehow connect that with the bank being unsafe, which is clearly not the case," he says.
However, he says the danger period passed with no dip in sales, and now the bank can utilise the benefits afforded to it of being part of the world's eighth largest banking group. It relaunched its product portfolio in March, rebranding its old Safety Plus Growth product as the Guaranteed Growth Plan. The product is essentially the same – a capital guaranteed, five-and-a-half-year cliquet linked to the FTSE 100. Every six months, the index's performance is measured, subject to a maximum move of 4% either way. At the end of the term, the measurements are added up and the return on the product is the greater of either this sum or 22%, effectively capping the return on the product at 44%. The main difference is that the bank is now allowed to use the term 'guaranteed' in its literature.
Previously, conversations with the bank's lawyers and the FSA ruled that out and it was sold with several caveats in its brochure. "It's essentially the same product, but we've been able to clear up the problems the FSA had about using the word 'guaranteed'. The majority of that was down to the fact that we're now backed by a significantly larger group," he says.
Chan says sales of the product have doubled, and he believes this to be mainly a result of the rebranding and the ability to cross-sell to the bank's large savings bond customer base. "It is great to cross-sell more to them, and to provide them with something which potentially provides a greater return and is more tax-efficient. Most of our customers are very cautious and they need to have something that looks and smells like a savings bond, without any nasty investment warnings which they still have prejudices against," he says.
This ties in with a problem Chan has with how the market is regulated. "The FSA seems to have a fairly strong microscope trained on structured products – much more so than on other areas. I think it's probably quite unfair," he says.
When the FSA launched its structured products probe in the wake of precipice bond mis-selling, Abbey was investigated because it had sold a capital-at-risk product – the extra income and growth plan – although it was not a precipice bond in the traditional sense. "It was all lumped together in the review," Chan says. "We had to go back and tell them we have done all the work requested of us and investigated the mis-selling and, lo and behold, it wasn't an issue. But because it was capital-at-risk all products were treated the same."
In addition to significantly stronger financial backing, the second benefit that Chan sees Abbey gaining from the Santander connection is greater ideas generation. Through its Guaranteed Investment Plan (GIP), he says, Abbey has adopted a concept that Santander has been using in Spain and across Europe, raising in excess of €8 billion. Rather than use an index or managed fund, the GIP links its return to the performance of a multi-manager fund operated by Abbey National Asset Managers, which invests in stocks and bonds with a long-term growth horizon.
Chan sees the product sitting well with new investors in the mutual fund market. "We know there are people out there who want to go into mutual funds but are inherently cautious. The bursting of the technology bubble still lingers in the back of their minds," he says. For him, the GIP is best suited for direct sales because of the way it sits in comparison to index-based products during the sales process. First, the salesperson has to explain the fund itself, and then they have to explain why the potential upside is much lower than you could get from a FTSE product.
"On the face of it, people think 65% participation is a poor proposition, but what many people don't realise is that all these index trackers lose dividend yield. And unless you expect the market to really boom, you need that dividend yield. Well, with this product you get it. However, it may not make sense in an intermediary distribution channel because an IFA isn't going to give it two seconds' thought," he says. Because this is not a problem for his direct salesforce, he says he is able to launch this type of structure.
But Abbey is not ignoring the IFA market. Its Abbey for Intermediaries brand launches products into that space and it's a business that Gómez-Roldán highlighted in February as "an important part of Abbey's plans for delivering growth." Andy Pennie, head of investment propositions at Abbey for Intermediaries, agrees, but says expansion is taking a little longer than on the direct side.
The bank recently hired Paul Bradshaw of Skandia Life to head up insurance and asset management. This, Pennie says, "sends good signals to the market that we are serious about the intermediary market". However, it's going to be a tough sell because of the high level of saturation in that market. Pennie, however, believes that keeping the bank's offering uniform and consistent with regard to their wrapper and tax treatment will enable them to carve out market share.
"Apathy towards structured products is no more prevalent than in the intermediary market. There are too many products, too many providers, too many taxable solutions and too many wrapper solutions," Pennie says. "There are huge constraints on IFAs' time. There are 60 structured products on offer at any one time, 2,000 Oeics, funds and unit trusts and 25 life providers. Reviewing them all is an impossible task and the product providers are not making that task any easier because there is no consistency between products."
As a result, Abbey's IFA products will now feature a consistent structure, using shares in a Guernsey-based company with an underlying Abbey guarantee and capital gains tax treatment. "I don't think we can afford to chop and change from one product to the next. If it's taxed differently or uses a different underlying, we run the risk of alienating the people who bought it last time and losing goodwill," he says.
The IFA market is particularly saturated with products in the five-year maturity bracket. This is an area where Pennie thinks Abbey can provide a truly differentiated offering, by launching products with much shorter maturities. Alongside this, he is gearing up for the launch of a residential property product in late summer. The idea behind this is linked to what the pensions industry has coined 'A-Day' (April 6, 2006). After that date, residential property will be allowed into self-invested personal pensions (Sipps), which could spark a renewed boom in the housing market. Pennie believes launching a product that can be included in Sipps and Sass pensions before April 6 will enable investors to take advantage of any rise associated with it.
As for Chan, one of his main aims for the year is to give more surety to investors over the returns they can expect from their products if they need to cash in early. Although the company sends out net asset value statements and offers liquidity, he feels that a real selling point would be to give them this information at the start.
The week on Risk.net, July 7-13, 2018Receive this by email