Hartmoor eyes UK structured deposits market

Hartmoor Financial, a subsidiary of technology giant Target Group, is eager to snap up opportunities in the booming structured deposits market. Ross Trotman, head of structuring, talks about the UK annuity reforms and regulatory change

Breaking into a new market is a challenge for any start-up, but the UK structured products arena is dominated by a small group of popular institutions with decades of experience in crafting highly sophisticated products for a savvy investor base, raising the barriers to entry.

For UK-based Hartmoor Financial, which launched in March 2015, the challenge has been to bring something genuinely new to the market. Hartmoor is a subsidiary of Target Group, a financial outsourcing and technology provider headquartered in Newport in South Wales, which hired two industry veterans from Investec earlier this year to drive its move into structured products.

“Our business plan is to bring new people into the structured products market. We don’t want to be a ‘me-too’ type operation. So initially we are focusing on structured deposits and plan to launch two by the end of the year that will be competitive, look good to customers, and give us a bit more of a marketing bang than if we simply joined the slightly crowded structured investments party,” says Ross Trotman, head of structuring at Hartmoor.

Structured deposits can be useful for those not looking to annuitise straight away at retirement

Trotman had been a senior structurer at Investec Structured Products for six years, responsible for new product and wrapper development. He joined Hartmoor alongside Mike Newman, director of structured products, who had been chief operating officer of Investec Structured Products.

Hartmoor’s strategy focuses on the origination of structured products for direct distribution by independent financial advisers (IFAs) and existing distribution houses. The firm also offers plan management services to existing structured products providers, leveraging Target Group’s experience in financial technology, including access to Target’s suite of product governance software so firms can benefit from its product approval and distribution oversight capabilities.

But why start with structured deposits?

“One reason is the UK pension reforms,” Trotman explains. “Structured deposits can be useful for those not looking to annuitise straight away at retirement. Another reason is that the UK deposit market is crying out for more competition. There are a number of banks out there that could compete here but don’t because they are not set up to do so from a governance perspective. Because we are not a bank we can move much quicker, be more reactive, more niche, and launch new products before the big players.”

While the deposits market may be less crowded than the bustling structured investments space, it is dominated by a small group of providers including Societe Generale, Morgan Stanley, Walker Crips Group and Investec, which has already pumped out five deposit plans this year. But Trotman believes Hartmoor can add value by providing simple and transparent products that are accessible to the current generation of retirees.

“Often, complex products are those that do not inherently offer good value. Instead they have unrealistic headline returns and operate on slightly odd principles. Really people looking for a ‘cash plus’ product like a structured deposit want to understand how it works, and that means IFAs need to understand how they work too,” says Trotman.

“Internally we have a set of design principles centred on making products that are easy to understand and offer a realistic chance of paying out. Our deposits will be equity linked, but not dual index or anything like that.”

Regulatory burden

While adding value beyond that offered by incumbents and bringing simplicity to the structured deposits market may be Hartmoor’s initial area of focus, the firm is also dealing with the growing weight of regulation that is burdening all participants in the sector.”The standard of product governance required to be in this market is far, far higher than it once was. The regulation is there to protect customers, but the market may not tolerate so many providers because the regulatory burden is such that some simply will not be able to put that in place,” says Trotman.

Both Trotman and Newman have experience in applying new regulatory requirements from their time at Investec, and during their first few months at Hartmoor they have spent a lot of time focused on the review of the Markets in Financial Instruments Directive (Mifid II) and the Packaged Retail and Insurance-based Investment Products (Priips) regulation.

“We have tried to future-proof our business for Mifid II before formally launching a product and a lot of the things in there we are ready for. One of the changes from Mifid I is that structured deposits are now captured by the governance and distribution requirements where they were once exempt, but we came to Hartmoor understanding that we would treat deposits and investments in the same way,” says Trotman.

“We also need to get ourselves in line with Priips and are fully involved and up to date with the latest developments, but more governance and oversight is good for the market,” he adds.