SpiderRock Advisors and Luma Financial Technologies have partnered up to offer clients technology and analysis tools to make it easier for advisors to access structured notes along with structured note replication strategies through separately managed accounts.

There has been a growing interest in the capital markets alternative space—and structured notes in particular. Structured notes are debt instruments with derivative components whose return is tied to reference securities such as stocks or indexes. Much of the recent interest in the products stems from advances in technology that make this space more accessible—as well as increased knowledge about the products and the interest in integrating them into balanced investment portfolios, according to SpiderRock.

Luma Financial, based in Cincinnati, is a platform for purchasers and manufacturers of structured notes while SpiderRock offers structured note replication strategies. With this partnership, SpiderRock will create education and analysis tools for clients of both firms while Luma Financial will give its clients access to SpiderRock’s strategies.

“Adding SpiderRock’s note replication strategy is a perfect addition to the platform, which is giving advisors an objective choice across a number of different products and the analysis to see which products may match,” said Tim Bonacci, president and CEO of Luma Financial.

The analysis and educational tools that Chicago-based SpiderRock will provide will help advisors understand the benefits of a structured note, according to Eric Metz, SpiderRock’s president and CIO.

“It’s a way for an advisor to communicate the cost/benefit analysis of each product to their clients,” he said. 

As part of the partnership, the two sides will coordinate and streamline their technologies to make it easier for clients to engage in the customized separately managed accounts that SpiderRock Advisors offers. 

“Bridging the gap between the product sets is completely a [result] of the partnership, but to … make the advisors’ lives easier, they need to be able to digest all of the information in a very concise manner to speak to their clients,” Metz said. 

Coordinating the technology and analysis tools will give the firms the opportunity to share with advisors how structured notes can work in portfolios. 

“We need to use that technology and analysis to make it easier for advisors to access that product,” Bonacci said. “Sometimes if a product is a little difficult to get information on, or educate or analyze, advisors don’t utilize it as much as they could or should.”

Structured replication strategies offer additional benefits such as liquidity, transparent fees, transparent holdings, and no credit risk. Structured notes in general are an ideal addition to an advisor’s portfolio because they can handle fluctuations in the market, according to Bonacci.

“Derivative-based investments … are a way you can really improve the risk/return balance for a client,” he said. “It’s hard to get any outpaced risk/return improvement from just market investments, and adding derivatives into portfolios can significantly improve that for clients.”

While they are an ideal investment option in a portfolio, there are benefits the products offer that make them durable regardless of market conditions.

“There’s a pretty powerful benefit to using these appropriately for a client portfolio, namely risk management, downside protection, income diversification [and] alternate sources of alpha,” Metz said.

SpiderRock and Luma had already been working together for years, and the decision to partner up on structured notes was an easy one based on that relationship, as well as growing demand from their clients.

“Clients are demanding it, and if you make it easy for them, I think we’ll see the whole market grow as it gets more facilitated,” Bonacci said.