📣 Kavout Algo Financial – Investor Insights Newsletter -- part-4

How Financial Advisors Provide Access to Investments Beyond Retail Markets#

One question we are often asked is:

“What additional value does a financial advisor provide beyond what I can do on my own?”

It’s an excellent question—and one that every investor with a solid understanding of investing should ask.

Beyond the points discussed in my previous newsletters—helping clients stay disciplined for the long term and diversify unnecessary risks—can advisors do more for sophisticated, thoughtful investors?

One important answer lies in access—specifically, access to investment solutions that are typically unavailable to retail investors. In this newsletter, I use structured products as a practical example to illustrate how financial advisors help bridge this gap.

Given today’s elevated equity valuations following a strong three-year market run, investment solutions that provide equity exposure with built-in downside protection can be particularly valuable in my view.

🔐 What Limits Retail Investors’ Access?#

Retail investors typically invest through publicly available instruments such as:

• Stocks and ETFs
• Mutual funds
• Public bonds
• Exchange-listed options

While these tools are powerful, they generally lack customization. Retail investors must accept market returns as they come—including full downside risk.

By contrast, many institutional investment solutions require:

• Large minimum investments
• Direct relationships with issuing institutions
• Regulatory suitability reviews
• Customized structuring

This is where a financial advisor plays a critical role.

🧩 What Are Structured Products?#

Structured products are custom-designed investment instruments, typically issued by large financial institutions, that combine:

• Traditional assets (equities, indices, interest rates)
• Derivatives (such as options)

Their purpose is to reshape the risk–return profile of an investment. Common features include:

• Enhanced income potential
• Downside buffers
• Defined risk levels
• Conditional upside participation

These products are not exchange-traded and are generally unavailable through standard retail brokerage platforms.

🔑 How Advisors Unlock Access to Structured Products#

1️⃣ Institutional Issuer Relationships#

Financial advisors work directly with major issuing banks—often global investment banks—that create structured products. These institutions typically:

• Do not offer products directly to individual retail investors
• Require advisory firms to act as intermediaries

Through these relationships, advisors can source offerings tailored to specific market conditions.

2️⃣ Customization Based on Client Goals

Unlike off-the-shelf ETFs, structured products can be designed around:

• Specific return objectives
• Defined downside protection (e.g., 10–30% buffers)
• Income generation needs
• Market views (bullish, neutral, or moderately bearish)

Retail investors generally cannot design or negotiate these terms independently.

3️⃣ Institutional Pricing and Efficient Structures Structured products often embed option strategies at institutional pricing, which differs meaningfully from what individual investors face when trading options on their own.

For example:

• A retail investor selling covered calls may encounter high transaction costs, margin requirements, and operational complexity
• A structured note embeds similar exposure in a single instrument, professionally packaged and efficiently managed

This level of efficiency is rarely available at the retail level.

📈 Example: A Structured Product I Purchased in 2025#

In 2025, I shifted a significant portion of my personal equity exposure from ETFs into structured products. As valuations continued to rise, I became increasingly uncomfortable with full downside exposure—yet I did not want to exit equities entirely. After all, strong momentum markets can persist longer than expected, especially if long-term themes such as AI adoption continue to materialize.

One structured product I purchased had the following characteristics:

• Underlying: S&P 500 Index
• Structure: Buffered note (no periodic income)
• Key features:
  • 110% upside participation
  • 30% downside buffer
  • 5-year maturity In simple terms, compared to an investor who buys an ETF tracking the S&P 500:
• If the index gains 100% over five years, this note delivers approximately 110%
• If the index declines by up to 30%, the note absorbs the loss and preserves principal
• Only if the index is down more than 30% at maturity does the investor experience losses similar to direct equity ownership

Historically, a decline of more than 30% over a five-year period has been extremely rare and occurred primarily during the Great Depression.

This structure offered me a more attractive risk–return tradeoff than direct equity exposure—while acknowledging important considerations such as limited liquidity and issuer (counterparty) risk. A responsible advisor evaluates both the investor and the product carefully before recommending such solutions.

🎯 Why This Matters for Investors#

Advisor-enabled access to structured products allows investors to:

• Customize risk and return more precisely
• Reduce downside exposure during uncertain markets
• Implement institutional-style strategies efficiently
• Build more resilient portfolios

This access is not about chasing higher returns—it’s about managing risk intelligently.

🧠 Final Thoughts#

Financial advisors do more than select investments. They provide:

• Access to institutional markets
• Customized investment solutions
• Professional structuring and risk oversight
• Opportunities unavailable through standard retail channels

Structured products are just one example of how advisory access can meaningfully expand the investment toolkit when used thoughtfully.

If you’d like to discuss whether structured products or other institutional strategies may be appropriate for your portfolio, we are always happy to talk.

Warm regards,

Kavout Algo Financial