The evolution of the asset manager

Following the financial crisis, more and more clients are relying on wealth advisors to provide valuable asset management services

The evolution of the asset manager
Education is a key factor in ensuring a client sticks to a well thought out investment plan 

Steeped in a rich history of managing family wealth, Clarien Bank established itself as one of Bermuda’s first family offices in 1974. With deep roots in the community and a full suite of wealth management offerings, Clarien Bank continues to manage the wealth of a discerning, international client base whose changing and complex needs demand better tailored solutions.

Since the financial crisis, clients have become increasingly engaged in the process of managing their wealth. There is now a notable trend away from the dominance of global, wholesale banks, as families gravitate towards boutique-style wealth managers offering more personalised, bespoke financial solutions. The contemporary client often has a global footprint and, as such, is increasingly seeking out a trusted advisor to help them navigate a more complex world.

A changing marketplace
With increased reporting and due diligence standards, along with myriad tax regimes through which clients may operate, it is essential wealth management providers solve these complexities and offer trust, estate planning and fiduciary services. Furthermore, with a heightened awareness of one’s tax obligations, it is important wealth managers have access to a network of multijurisdictional tax advisors and other service providers for their clients in order to assist in the setup of complex, tax-effective private client structures.

As clients become better informed, with greater access to information, asset managers must stay relevant in an ever-changing marketplace. Successful asset managers will be measured on their ability to deal with uncertainty by finding a balance between risk and return. This trade-off is the cornerstone of investment decision making, and should be a fundamental part of the investment process.

Investment behaviour
Risk-return is a simple enough academic concept to grasp, but striking the optimum balance can be challenging. It is therefore critical advisors keep a steady and open dialogue with their clients in order to facilitate a better understanding of the risk exposures within their portfolio. This in turn will lead to a better grasp of the return horizon and objectives, as well as build confidence with clients.

As clients become better informed, with greater access to information, asset managers must stay relevant in an ever-changing marketplace

While statistics by no means guarantee the achievement of the return goal in any individual year, they do provide a strong framework for achieving positive results over the long term. Ideally, the strategic asset allocation model should produce enough confidence in its projected results that a client is willing to ride out market turmoil and remain invested. Some of the most significant opportunities that can add value occur during periods of market duress or euphoria, when clients are tempted to abandon their investment plans.

Client education by a wealth manager is a key factor in ensuring a client sticks to a well thought out investment plan. Statistics show one of the single most significant reasons for underperformance by investors over time is behavioural bias – particularly in uncertain times like these.

In a study entitled Behavioural Coaching: Helping Clients Choose Planning Over Emotion, Vanguard estimated behavioural coaching by a trusted wealth management advisor can add 1.5 percent annually to the value of a client’s portfolio. This is because the average investor tends to buy high and sell low – a behavioural trend that grossly contradicts the ‘buy low/sell high’ investment rule.

Risk-return strategies
A robust, strategic risk-return framework should focus on the long term and be able to respond to a range of economic outcomes in a balanced manner. Portfolios should aim to achieve superior returns through diversification and careful portfolio construction that contemplates the way different asset classes respond to various economic environments, including stress testing. In today’s fully interconnected world, diversification, access to specialist best of class managers and proactive management based on fundamental research remain more vital than ever.

Wealth managers should also be committed to independence, allowing them to concentrate on finding the best investment, insurance and estate planning solutions from around the globe in order to enhance a client’s overall portfolio. Being flexible with the ability to find solutions that vary from mainstream thinking is the key to success.

With the impressive growth of international business on the island, Bermuda has evolved into one of the world’s premier financial centres. As families become more dispersed and transient, Bermuda is considered a safe and easily accessible domicile with a long history of legal, trust, insurance, tax and investment expertise. It will continue to attract clients who require a full suite of financial services and advisors who understand wealth management is a relationship business where trust, integrity and credibility are paramount to the client.