As banking companies take steps to move into the forefront of investment management, some have begun offering an array of complex products for their more sophisticated affluent clients. Paul N. Watterson Jr., an attorney with the New York-based law firm of Schulte Roth & Zabel, advises a number of private banking departments as well as their well-heeled clientele about such exotica as equity and debt swaps and foreign exchange contracts. Recently, he sat down in his midtown Manhattan office and discussed issues that banks need to consider when offering complex and risky investment options.

Q.: What exactly are these new products being offered?

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