e-Forex Magazine | Features | Features : Growing FX ecommerce revenue through Wealth Management product distribution


Dave Clarke

Features : Growing FX ecommerce revenue through Wealth Management product distribution

First Published in e-Forex Magazine April 2006

Dave Clarke

Co-Founder & DirectorTechnology for Markets Limited

Dave Clarke describes how High Net Worth clients have been overlooked by many FX eCommerce groups.

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Significant revenue growth can be achieved by successfully distributing FX products to High Net Worth (HNW) clients and Family Offices. These client segments have been overlooked by many FX eCommerce groups. However, with increased pressure on eCommerce platforms to contribute to the bottom line the greater the need to serve profitable market segments. HNW clients and Family Offices can be extremely profitable if served well.

The key to successfully providing FX products to HNW clients is to deliver products that help those clients achieve their financial objectives. Only a minority of HNW clients wish to speculate in FX through a margin account. The majority of HNW clients are seeking to achieve a level of return whilst taking sensible risks with respect to capital preservation.

Many FX desks have failed to penetrate their internal HNW client groups as a result of pushing inappropriate products and by failing to convince clients of the need for FX investments. Asset allocation is the starting point for a relationship with the HNW clients.

When FX is viewed as an asset class the discussion with HNW clients and their advisors turns from whether or not a client should have exposure to FX at all, to a discussion of what percentage of the clients portfolio should be invested in FX in order to reduce overall portfolio risk through diversification. The discussion then becomes a process of selecting the appropriate product to provide this diversification.

Medium Term Notes
Medium Term Notes (MTNs) are the most attractive investment for clients requiring capital preservation.

The MTNs that are most successful have coupons that are linked to a basket of currencies. eCommerce groups can provide significant benefits to this process by delivering technology that makes the distribution of MTNs scalable. Typically, a MTN will be launched with a defined marketing period.

The financial advisors that deal directly with HNW clients will offer the product to clients based on a term sheet that explains the details and performance of the note. The financial advisor with then notify the issuing desk of any firm orders. If this is done manually it is a slow and inefficient process.

eCommerce groups can provide significant benefits to this process by delivering technology that makes the distribution of MTNs scalable.

FX eCommerce groups can improve this process by providing an internal web offering that serves both as an effective advertising medium and an order taking mechanism.

Dual Currency Deposits
Dual Currency Deposits (DCDs) are widely used by investors to achieve superior returns over simple deposit products. DCDs are particularly popular at the moment due to the relatively low interest rate environment.

These products have been widely used by HNW clients in Asia for many years. Part of the reason for this popularity is due to the tendency of HNW clients in Asia to allocate assets between USD investments and EUR investments. Whilst not necessarily a 50:50 split it is not unusual to see a 60:40 or 70:30 allocation between USD and EUR investments. For this reason there is little incremental risk to a HNW client from a DCD that is denominated in USDs but that could be repaid in EURs as it would simply alter the balance of assets.

Simple, High Margin Business Model
From a clients point of view DCDs offer the opportunity to achieve greater returns and a greater degree of diversity of returns without assets being tied up for a long period. From the institutions perspective DCDs offer a simple, high margin business model. DCDs are short dated but they are often rolled over into new DCDs at maturity.

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