Selling (Marketing) Derivatives: A "Product Concept" approach - Part I
Team Latte
July 11, 2007

Recently we were faced with a challenge, a humongous challenge, so to speak. But we'll talk about that in the following article. First, let's get the prologue.

A couple of months ago the head of Private Banking for Asia for a large European bank posed a simple question to his senior deputies in one of those Monday morning strategy sessions: if you were to sell derivatives and other complex products to high net worth individuals what skills would you need the most? . Private bankers worldwide are known for their Ermenegildo Zegna suits, Cartier watches, impeccable manners and a total lack of intellect and any thinking power. Not this one, apparently. The question, sort of, hung in the air for a few days. One of the deputies was in the process of organizing a ZeroPenny training course for its team of Relationship bankers and thought it would be a great idea if ZeroPenny could customize the training course around this idea: selling - and presumably "marketing" - skills needed by Relationship bankers to sell complex products to high net worth clients.

ZeroPenny, which churns out more training courses for bankers, finance professionals, graduates, techies, MBAs, CEOs, retired grandparents and bored housewives in a day than there are number of hours in it, effortlessly designed a curriculum - apparently put together by a headhunter - and assigned two business school professors to teach the course to the bankers in question. The headhunter headhunted senior professionals for private banks in the region and hence had to know everything about selling derivatives by private bankers; who else but him to put together a curriculum. The two professors, who taught finance courses at two top Ivy League business schools in Asia, had neither in their lifetime ever met a truly high net worth individual nor had ever talked to a priority banker, let alone a private banker. However, they had completely memorized John Hull's Options, Futures and Other Derivatives and thus, ZeroPenny opined that they would naturally be the best persons in the world to talk about derivatives and complex products.

Thus about three weeks after the question was first asked by the senior private banker to his deputies, one of them marched into his office and said that he had the answer: a thorough, comprehensive ZeroPenny training for all the Relationship bankers in the team. Apparently, a very enlightening conversation took place between the two private bankers - the boss and his deputy - that morning and it was the boss who got enlightened. Sipping pinacoladas after work, he would recount this discussion in vivid detail to many of his mates in the industry. He would keep on talking about something called the "product concept" as if he had actually seen the Blair witch in person. One such person who talked to him was the head of FIG (financial institutions group) with an investment bank who then recounted the tale to us.

One day over the phone he asked us: "Simon, what the hell is product concept? I am asking you since you're the only one there with any grey matter....what?...yes, that's a joke. So what the hell's this product concept?" Simon, who is a great researcher and thinks that he knows everything about everything, and is also a valuable member of our team, had no idea at all. So he went over to this Head of FIG that evening to hear the story. After hearing the story he did a bit of research.

The headhunter who had drafted the curriculum for those poor sods, the Relationship bankers, had done so in one line bullet points and in one of them had put in the phrase "product concepts"; next to that he had put in around 10 to 12 different structured product types. What he was apparently referring to was the understanding of these derivative products. The professors, who came to conduct the course for those poor sods, read differently. Since they knew next to nothing about say, a callable range accrual swap apart from what was written in John Hull, they thought it would be daunting task to actually talk about ten or twelve structured product categories in any detail. So when they reviewed the curriculum they modified the line slightly and changed the phrase "product concepts" into " product concept of selling ".

Simon, dug deeper and found out that the professors had indeed talked about the product concept of selling but no one in the group could recollect a word of it. He was therefore faced with this apparently Herculean task: find out what the "product concept" was after all and how it could be applied to derivatives selling and marketing because he had to send a concept paper to this Head of FIG for his presentation.

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