Many of our clients are often surprised to hear that we have such strong relationships with our investment banks. After all, a key part of our offering is securing the best prices on structured investments, effectively putting the banks we work with in competition with each other. Why would they want to do business with Affinity?
The reality is that our service is a win-win for all parties involved, including investment banks. Our focus is to strengthen and grow the structured investment space and it’s impossible to do that without providing a fair deal for both note issuers and investors.
Yes, we hold investment banks to account for the fees they charge, but the benefits of our services far outweigh any potential drawbacks. In fact, investment banks often see us as an ally, as we remove the considerable trade organisation burden from their structured product operations and allow them to concentrate more on achieving growth.
Headcount on a trading floor is very expensive. If you make it onto the trading floor at a top investment bank, the estimates of what you will cost that bank can often go as high as £1 million per person. Why is this? Well, the support sitting behind that one person in sales or trading is immense. There are lawyers, compliance officers, risk managers, technology budgets, IT infrastructure, back office support, regulatory requirements – the list is endless.
Having this headcount working on non-profitable trade support issues is hugely negative to performance and profit. Performance and profit is all that matters on a trading floor. Removing clerical tasks and the headache of the offshore business while retaining only the trading side is what every investment bank that runs its affairs efficiently wants.
Affinity has created a unique FinTech ACE solution that streamlines the process by which orders are sent and received between investment banks and major offshore life companies. We identified a disconnect in the market that had existed for far too long and continues to hamper structured investment growth today.
Before Affinity, offshore life companies relied on faxes to send dozens or even hundreds of individual instructions to their investment banks for each account or portfolio linked to a structured note. Unsurprisingly, busy trading floors found it difficult to cope with this never-ending deluge of paperwork; orders get lost, settlement problems arose and payment delays resulted in fines.
This process soaked up a phenomenal amount of time and resources for investment banks, with many forgoing the offshore structured investments space entirely, in part due to these organisational problems.
Investment banks are primarily interested in the final traded size of structured investments. Splitting out orders on an individual basis is a thankless and time-consuming task that comes at a cost. Ultimately, this cost is passed on to investors in the pricing.
Affinity recognised the need for change, and we spent the best part of two years implementing and perfecting our automated trade recognition system and reconciliation software. Our sophisticated platform is the culmination of our own extensive experience on the trading floors of the world’s biggest investment banks.
The system collects all types of orders from insurance companies, which are then individually validated and recorded against each firm. A daily summary of orders is then recorded and reconciled, providing a comprehensive paper trail should disputes arise.
Affinity understands that investment banks need to make money. We also have first-hand experience of the huge regulatory and compliance pressures organisations face in a post-Global Financial Crisis world.
That’s why our services aim to forge better relationships between banks and offshore life companies, creating greater value for everyone involved in a trade. The feedback we receive from banks is almost universally positive, and compliance departments often comment how refreshing it is to work with a team that empathises with their role.
By handling every element of trade support, Affinity brings a wholesale approach that alleviates a significant workload from investment banks, allowing insurers to benefit from the best pricing.
In our opinion, investment banks are unfairly vilified as only wanting to maximise their profits, even at the expense of their own clients. However, our experience shows that banks are only too willing to create value for investors when they have access to the right tools, processes and services. At Affinity, we provide all this and more.