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Selling complex financial products to retail clients.

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by Warren Edwardes, Chief Executive of Delphi Risk Management Limited.

Warren Edwardes is CEO of Delphi Risk Management, the London-based financial product creativity, communication and control consultancy. He is Director of The London School of Banking and Finance and author of inkey financial instruments. understanding and innovating in the world of derivatives - warren edwardesternational best-seller, Key Financial Instruments: understanding and innovating in the world of derivatives" 4 February 2000 Financial Times Prentice Hall ISBN 0273 63300 7 London 


Warren was previously on the board of Charterhouse Bank and has worked in the treasury divisions of Barclays Bank, British Gas and Midland Bank. He first researched into what were later to be called "derivatives" in 1975 and was part of the team that executed one of the world's first currency swaps in 1981. Since then he has devised and transacted numerous structures that form part of the history of derivatives. Edwardes can be contacted via we@dc3.co.uk

13 December 2002 Interview with Duncan Wood of Erisk News (Enterprise Risk News) 

Buyer Beware: selling complex financial products to retail clients. pdf

“Of course structured financial instruments can be sold to the retail client” says Warren Edwardes, ceo of financial product innovation and risk consulting firm Delphi Risk management. “Product development must be a customer driven approach and the financial markets must be tweaked to fulfil the needs of the retail client. But I believe that great care must be exercised in selling derivatives and other highly structured products direct to Joe Public. There is always the danger that the investor may claim, truthfully or otherwise, not to have understood the product and declare that it was mis-sold.

Edwardes recalls that “NatWest Bank justifiably demanded the replacement cost when its fixed rate mortgages were repaid early. But ill-informed pressure groups hounded the bank to give in.”

“Selling structured products through intermediaries can be fraught with difficulty. I am currently working on a case where the London branch of an international bank sold USD 1m of distressed debt on a margin basis to a Latin American investor with net assets of USD 200,000. Whilst the initial margin was a mere USD 80,000 a variation margin call was triggered a week after the deal was struck making the client insolvent. And this deal was sold via the bank's New York branch through an agent based in the investor's home Latin American country. Even if less highly structured transactions are sold cheaply over the telephone then financial institutions must ensure that their telephone sales staff are adequately trained to cope with searching questions. Perhaps a contradiction? The internet could prove ideal in that the bank selling the product could even provide a several thousand word explanation of its products at negligible cost. No staff training would be required as customers would be expected to read the literature and understand the product themselves. Questions could be answered not by lowly-paid and hardly-trained telephone-sales staff but via e-mail which would allow a considered answer which would then be posted up on a "frequently asked questions" page ready for the next potential customer.” says Edwardes.

In Edwardes opinion, the most successful products are those that can be explained in a 30-second television sound-bite. “Whilst these have the inherent problem of being easy to replicate by competitors, anything much more complicated could lead to complaints years down the line over mis-selling and misrepresentation”.


"Derivatives: Targeting the retail client" November 2001, FOW, London link

related articles

"APRs - misleading, misused or just plain misunderstood", 8 Apr. 1995, The Times, London  link

"Less Technophilia - have faith in fools", Leader Column, Apr. 1999, Treasury Management International, London link

"Guaranteed annuities - no excuse for not managing risk" 12 February 2000, The Times, London  link

"The Equitable Life: Boards sued for not using derivatives" 10 September 2000, The Sunday Times, London  link

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Delphi Risk Management: Delphi creativity Delphi communication & Delphi control are the Innovation, Communication & Risk Management arms of Delphi Risk Management Limited 

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