How to Start a Structured Products Provider: A Comprehensive Guide
The financial landscape is in a constant state of evolution, with investors and wealth managers alike seeking innovative solutions that can navigate market volatility while delivering tailored outcomes. Structured products, a type of investment product, have emerged as a powerful tool in this environment, offering a unique blend of potential for high returns, risk mitigation, and customization. As innovative investment vehicles, they cater to a range of investor needs. The global structured products market has more than doubled since 2020, with sales reaching an all-time high in 2024, and the structured finance market is projected to grow by USD 1,128.5 billion between 2025 and 2029, expanding at a CAGR of 11.9%. This explosive growth presents a significant opportunity for new entrants to establish themselves as providers in this burgeoning market.
This comprehensive guide provides a roadmap for entrepreneurs and financial institutions looking to launch a structured products provider. We will delve into the critical aspects of building a successful business in this space, from understanding the market opportunity and regulatory landscape to establishing the necessary technology infrastructure and go-to-market strategy.
What you’ll learn
•The current state and future outlook of the structured products market.
•Key considerations for developing a robust business model and navigating the regulatory framework.
•The essential technology and operational infrastructure required for a structured products provider.
•Effective strategies for client acquisition, product distribution, and team building.
Introduction to Structured Products
Structured products are the game-changing financial instruments you need to tackle your specific investment objectives—whether you’re focused on risk management, capital preservation, or capturing that crucial upside potential in any market condition! By brilliantly combining traditional securities like bonds with derivative components, these products deliver tailored investment solutions that work specifically for your unique risk tolerance and financial goals. Wealth management firms are already leveraging structured products to offer you incredible features like principal protection and downside protection—helping you confidently navigate those volatile markets while you aim for your targeted returns. These products are particularly powerful when you’re seeking to manage risk without sacrificing your opportunity for growth, making them an absolutely versatile tool that transforms modern investment portfolios.
The Burgeoning Market for Structured Products
Structured products are pre-packaged investments that typically combine a traditional asset, such as a bond, with one or more derivatives. This hybrid nature allows for the creation of a wide range of investment profiles, catering to specific risk appetites and market views. The appeal of structured products lies in their ability to offer features that are not readily available in traditional investments, such as principal protection, enhanced income, and leveraged exposure to various underlying assets, including equities, commodities, and currencies.
The market for structured products is not only growing but also becoming more accessible. While traditionally the domain of institutional investors and high-net-worth individuals, with minimum investments often exceeding $500,000, the landscape is changing. Technology-driven platforms are democratizing access to these products, with some providers now offering entry points as low as $25,000. This expansion into the retail market is a significant growth driver, fueled by increasing investor demand for more sophisticated and risk-managed investment solutions. Current market conditions, including prevailing interest rates and bond market performance, play a crucial role in shaping both the demand for and the structure of these products.
The outlook for 2025 remains highly positive, with strong performance in 2024 and spreads that are still attractive compared to other asset classes. Interest rates and trends in the bond market continue to impact the attractiveness and performance of structured products, as investors seek yield opportunities and manage risk in response to changing interest rate environments. Key sub-sectors like Agency Mortgage-Backed Securities (MBS), Asset-Backed Securities (ABS), Commercial Mortgage-Backed Securities (CMBS), and Collateralized Loan Obligations (CLOs) are all poised for continued growth, each presenting unique opportunities for issuers and investors.
Sub-Sector | 2025 Outlook Highlights | Expected 2025 Issuance |
|---|---|---|
Agency MBS | Favorable technical position with constrained supply and expected increase in bank demand. | Similar to 2024 |
ABS | High credit quality, stable cash flows, and strong performance in esoteric sectors. | ~$340 billion |
CMBS | Attractive spreads and increasing optimism despite refinancing challenges. | $110 – $130 billion |
CLOs | High nominal returns and growing interest from a broad range of investors. | ~$180 billion |
Table 1: 2025 Outlook for Key Structured Product Sub-Sectors
Building the Foundation: Business Model and Regulatory Compliance
Launching a structured products provider requires a solid foundation built on a well-defined business model and a rigorous approach to regulatory compliance. Structured products are a type of financial product subject to specific regulatory requirements, including transparency and disclosure obligations. These two elements are intrinsically linked and will shape every aspect of the business.
Business Model and Revenue Streams
The primary revenue stream for a structured products provider is the fee generated from designing, issuing, and managing these products. These fees can be structured in various ways, including upfront charges, annual management fees, and performance-based fees. The “spread” or the difference between the cost of the underlying assets and the price at which the structured product is sold to investors is another key component of profitability.
A successful business model will be aligned with the firm’s target market and product offerings. For example, a provider focusing on mass-market retail clients will need a highly automated and scalable platform to be profitable, while a firm catering to institutional clients may focus on providing highly customized and complex solutions with a more bespoke service model. The initial investment required from buyers is typically set at the face value of the structured product, which represents the principal amount to be returned at maturity, subject to product terms. Participation rates are also a key feature, as they determine how much of the underlying asset’s performance is passed on to the investor, directly influencing potential returns and interacting with other product features such as caps and floors.
The Regulatory and Compliance Framework
The structured products market is subject to a complex web of regulations designed to protect investors and ensure market integrity. In the United States, the primary regulatory bodies are the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Providers must also comply with state-level regulations.
Key regulatory requirements include:
•Regulation Best Interest (Reg BI): This SEC rule requires broker-dealers to act in the best interest of their retail customers when making a recommendation of any securities transaction or investment strategy involving securities.
•Suitability: FINRA rules require firms to have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer.
•Disclosure: Providers must provide clear and comprehensive disclosure of the features, risks, and costs associated with their products. This includes providing pricing and valuation transparency. The cover page of the prospectus or pricing supplement typically includes the initial estimated value of the structured product, giving investors important information about the product’s estimated worth before purchase.
•Supervisory Procedures: Firms must establish and maintain written supervisory procedures reasonably designed to ensure that their sales of structured products are compliant with all applicable rules and regulations.
Navigating this regulatory landscape is a significant undertaking. New providers must be prepared to invest in legal and compliance expertise to ensure that their operations are fully compliant from day one. This includes developing robust policies and procedures, implementing a comprehensive training program for all staff, and establishing a system for ongoing monitoring and supervision.
Investment Options and Vehicles
The dynamic world of structured products delivers an impressive arsenal of investment opportunities and vehicles, each crafted to satisfy diverse investor appetites and strategic goals. Structured notes stand out as a powerhouse option that directly connects your returns to high-performing underlying assets—think stock indices, bonds, or commodities that drive real market action. Game-changing vehicles like mutual funds and market-linked certificates unlock exposure to various underlying assets while offering flexible payoff profiles that adapt to your investment vision. Whether you prefer straightforward buy-and-hold strategies or sophisticated approaches that leverage options and derivatives, the choice is yours. Smart investors recognize that understanding the critical risks and performance drivers of these investment vehicles isn’t just important—it’s essential, because your selection of underlying assets and product architecture will directly impact both your risk exposure and return potential.
Asset Classes and Diversification
Asset classes and diversification are fundamental powerhouses that make structured products absolutely game-changing for your investment portfolio success! Structured products deliver exceptional access to a broad range of asset classes—including equities, fixed income, and alternative investments—allowing you to intelligently spread risk across different markets and sectors while maximizing your potential. Diversification isn’t just important; it’s critical for managing investment risk because it dramatically reduces your reliance on any single asset class or market performance. By investing in a strategically diversified selection of structured products, you don’t just potentially enhance returns—you actively mitigate downside risk while positioning yourself for superior outcomes. Financial advisors become instrumental partners in helping you construct diversified portfolios that perfectly align with your investment objectives and risk tolerance, ensuring that structured products work effectively as part of your comprehensive investment strategy that delivers real results and peace of mind.
The Engine Room: Technology and Operational Infrastructure
The structured products business is a high-volume, fast-paced environment that demands a sophisticated and robust technology infrastructure. Automation is not just a competitive advantage; it is a necessity for survival. From pricing and issuance to post-trade management, technology is the engine that drives the entire operation. A robust technology infrastructure can also enhance liquidity and facilitate access to the secondary market for structured products, making it easier for investors to buy or sell these products before maturity.
The Structured Notes Issuance Workflow
A typical structured notes issuance workflow involves several key stages, each of which can be streamlined and automated through technology:
1.Pre-Trade: This stage involves receiving requests for quotes (RFQs) from clients, calculating prices, and generating term sheets. Modern platforms can handle tens of thousands of RFQs daily, with automated pricing systems (autopricers) that can read RFQs, calculate prices, and generate responses in seconds.
2.Trade Execution: Once a client accepts a quote, the trade is executed. This process can be integrated with order management systems to ensure seamless execution and booking.
3.Post-Trade: After execution, the process of drafting and executing legal documents, such as the pricing supplement or final terms, begins. Document automation solutions can significantly reduce the time and effort required for this stage. This is followed by settlement and post-issuance management, including lifecycle event monitoring and mark-to-market (MTM) calculations. Lifecycle event monitoring includes tracking the maturity and maturity date of structured notes, which are critical for determining final payouts and the return of principal to investors.
Key Technology and Risk Management Components
A modern structured products platform will typically consist of the following components:
•Multi-Issuer Platform: A platform that provides access to a wide range of structured products from various issuers, allowing for price comparison and best execution.
•Pricing and Analytics Engine: A sophisticated engine that can price a wide variety of structured products and provide detailed analytics on their risk and return characteristics.
•Document Automation: A system for automating the generation of term sheets, pricing supplements, and other legal documents.
•Order Management System (OMS): An OMS for managing the entire order lifecycle, from order entry to execution and settlement.
•Post-Trade Management System: A system for monitoring lifecycle events, calculating MTM, and providing ongoing reporting and analytics.
There are a number of technology providers that offer solutions for structured products providers, including Luma Financial, LexiFi, and Leonteq. These platforms can provide a turnkey solution for new entrants, enabling them to get to market quickly with a state-of-the-art technology stack.
Go-to-Market: Client Acquisition and Distribution
A well-defined client acquisition and distribution strategy is essential for success in the structured products market. The target market for structured products is diverse, ranging from retail investors to large institutional clients. The distribution strategy should be tailored to the specific target market.
Investment advice is often provided by financial professionals as part of the distribution process, helping investors understand the features and risks of structured products before making a purchase.
Structured products are often positioned as buy and hold investments, designed to be held until maturity rather than actively traded or sold early.
Target Market Segments
•Retail Investors: The retail market for structured investments is growing rapidly, driven by increased accessibility and demand for more sophisticated investment solutions. This segment can be reached through online platforms, broker-dealers, and registered investment advisors (RIAs). For retail investors, there is a distinct possibility that their principal may be tied up for an extended period with limited profit, highlighting the long-term commitment involved.
•High-Net-Worth Individuals (HNWIs): HNWIs are a traditional market for structured investments, seeking customized solutions to meet their specific investment objectives. This segment is typically served by private banks and wealth management firms. There is also a distinct possibility for HNWIs that investing in these products could result in their funds being committed for a long duration, sometimes with no profit.
•Institutional Investors: This segment includes pension funds, insurance companies, and asset managers. They typically have large investment portfolios and require highly customized and complex structured investments.
Distribution Channels
•Direct Sales: A direct sales force can be effective for targeting institutional clients and large family offices with a range of financial products, including structured products.
•Intermediaries: Partnering with intermediaries, such as private banks, broker-dealers, and RIAs, is a common and effective way to reach a broad range of investors with various financial products.
•Digital Platforms: Online platforms can be used to distribute structured financial products directly to retail investors, providing a scalable and cost-effective distribution channel.
Tax Implications and Planning
Understanding the tax implications of structured products is absolutely crucial for savvy investment planning that delivers real results. The tax treatment of these powerful investment vehicles depends on key factors such as the type of product, the nature of underlying assets, and your individual tax situation – and getting this right can make or break your returns. Returns from structured products may face “capital gains tax” or “income tax” depending on how you structure the investment and when you execute sales or redemptions. Smart investors consult a tax professional to assess the estimated value of their investments and develop a “tax-efficient strategy” that slashes potential liabilities and maximizes wealth preservation. When you actively consider the tax consequences of buying, holding, or selling structured products, you preserve more of your hard-earned investment value and optimize your overall returns – that’s the difference between good investing and great investing.
Investor Education and Support
Given the game-changing complexity of structured products, investor education and support aren’t just helpful—they’re absolutely essential for making smart, winning investment decisions! Wealth management firms and financial advisors are your secret weapon in delivering top-notch educational materials and expert guidance that help investors truly understand the features, risks, and costs that come with these powerful products. Don’t skip this step—reviewing the key information document and other disclosures from the issuer is your mission-critical move for assessing potential outcomes and making rock-solid investment choices. Investors need to level up by seeking advice from financial advisors and other experts who can help them navigate the exciting intricacies of structured products and develop a personalized, winning investment plan that perfectly aligns with their goals and risk profile. By leveraging cutting-edge educational resources and professional support, investors can master the markets, manage risks like pros, and make confident, game-changing investment decisions that deliver results!
Building the Dream Team: Key Roles and Responsibilities
A successful structured products provider needs a team with a diverse set of skills and expertise. The key roles and responsibilities in a structured products team include:
•Structuring/Financial Engineering: This team is responsible for designing and engineering new structured products. They play a critical role in the development and innovation of structured products, leveraging their deep understanding of financial markets, derivatives, and quantitative modeling.
•Sales and Trading: This team is responsible for marketing and selling structured products to clients, as well as for managing the firm’s trading and hedging activities.
•Legal and Compliance: This team is responsible for ensuring that the firm’s activities are compliant with all applicable regulations. They need a deep understanding of securities laws and regulations.
•Operations: This team is responsible for the day-to-day operations of the business, including trade processing, settlement, and post-trade management.
Conclusion: The Path to Success
The structured products market presents a significant opportunity for new entrants who are prepared to navigate its complexities. Success in this market requires a deep understanding of the products, a robust technology infrastructure, a rigorous approach to regulatory compliance, and a well-defined go-to-market strategy. By building a solid foundation in these key areas, new providers can position themselves for success in this dynamic and rapidly growing market. The journey to launching a structured products provider is a challenging one, but for those who are up to the task, the rewards can be substantial.
Frequently Asked Questions about Structured Products
1. Can structured products provide income?
Yes, many structured products are designed to generate regular income through coupons or periodic payments. These payments often depend on the performance of an underlying asset such as a stock index, bond, or a basket of equities. However, income is not guaranteed and may vary depending on market conditions and the product’s structure. With InvestGlass, investors can easily track these payments and monitor their income flows in real time.
2. What are the four types of structured products?
The four main categories of structured products are:
- Capital protected products, which offer principal protection at maturity.
- Yield enhancement products, which aim for higher returns with limited or no capital protection.
- Participation products, which allow investors to share in the performance of an underlying asset.
- Leverage products, which amplify exposure to market movements, offering higher potential returns and greater risks.
InvestGlass helps advisers and clients compare these structures quickly and visualise their potential outcomes through interactive dashboards.
3. How do banks make money from structured products?
Banks usually earn revenue from several sources, including embedded margins within product pricing, hedging costs, management fees, and distribution commissions. These margins are built into the structure and may not always be visible to the investor. Through InvestGlass, you can gain more transparency into these cost structures and assess potential returns more clearly.
4. How to price structured products?
Pricing involves several steps: valuing the underlying assets, modelling embedded options such as calls or puts, discounting future cash flows, and accounting for factors like volatility, interest rates, and time to maturity. Models such as Black-Scholes and Monte Carlo simulations are often used. InvestGlass offers integration options that allow you to connect pricing tools directly to your client portfolios.
5. What are the risks of investing in structured products?
Structured products come with risks such as issuer risk (if the issuing bank defaults), liquidity risk (difficulty selling before maturity), market risk (linked to the performance of the underlying asset), and complexity risk (difficulty in fully understanding the structure). InvestGlass helps mitigate these challenges by centralising performance data and risk reporting in one easy-to-use platform.
6. Are structured products suitable for all investors?
Not necessarily. Structured products tend to suit experienced investors who understand derivatives and risk-return trade-offs. Retail investors should consider their risk tolerance, time horizon, and liquidity needs before investing. Wealth managers using InvestGlass can easily match clients with suitable products based on their profiles and investment goals.
7. How long do structured products typically last?
Structured products usually run between six months and five years. Some include early redemption or “autocall” features that can trigger repayment if certain market conditions are met. InvestGlass makes it simple to monitor these milestones and automate client notifications.
8. What are the benefits of structured products?
Structured products offer customisation to match specific risk and return objectives, diversification through exposure to various asset classes, and potential for enhanced yield in low interest-rate environments. Some also provide partial or full capital protection. With InvestGlass, advisers can present these benefits visually through performance dashboards and product comparison tools.
9. Can structured products lose money?
Yes, if the underlying asset performs poorly and the product does not offer capital protection, investors can lose part or all of their principal. Even protected structures may deliver lower returns compared to direct investments. InvestGlass helps investors track downside scenarios and stress-test potential outcomes.
10. How are structured products taxed?
Tax treatment depends on the jurisdiction and the product’s design. Coupon income may be taxed as interest or income, and capital gains may apply at maturity or redemption. It is best to consult a tax adviser for specific advice. InvestGlass provides tools to record and report income for accurate tax and compliance management.