In Parts 1 and 2 of this series of posts, we examined two significant trends in serving the investment needs of high net worth clients. The first in the series focused on how leading RIA and multi-family office firms have determined that hiring more staff to offset deficiencies in off-the-shelf products and outsourced providers is neither efficient nor scalable. The second in the series focused on how the lingering bruises of the economic crisis have prompted high-net-worth clients to assume a more central role in investment management decisions. In response to the growing pressure these trends exert on wealth advisors, many of them have turned to outsourced specialists.
In Part 3 of this series, I will discuss how advisors can showcase the value they bring to the table in the face of a fast-evolving industry. Right now, advisors have an enormous opportunity to redefine themselves and step away from the old template. Sophisticated clientele require round-the-clock updates on the strength or potential weaknesses of their portfolios. In this complex environment, advisors who can stay agile and respond quickly to news that impacts the markets and their clients’ investments stand to make significant professional gains. To capitalize on the shift in expectation for robust service and greater detail, advisors can add value by utilizing the new tools and technologies embedded in a comprehensive solution that has evolved with the times to help them increase efficiency and scalability.
Finding and evaluating such a solution is the first step. Below are four critical features to consider:
An enterprise reporting system gives advisors the ability to view asset allocation, liquidity and risk factors not just for one client, but across the entire firm.
When the financial crisis hit, one financial firm utilized an enterprise reporting system to quickly identify all auction-rate securities (ARS) held by all of its investors. Recall that ARS were believed to be safe, liquid, short-term alternatives to money market accounts. But in 2008, the underlying debt of insurance-backed securities led to a collapse in price and liquidity. Investor holdings were frozen.
Within hours, the firm was able to notify investors of their positions in ARS and current valuations, quickly communicating new information, tracking each security, monitoring new interest rates and identifying potential alternative sources of liquidity. Without the enterprise reporting capability, damage to investors would have remained unclear until it was too late to do anything about it. This system ratcheted efficiency up to a level that allowed for risk mitigation, and not simply a too-little, too-late response to it.
For advisors and clients, the “how” of what is reported is as important as the “what.” Transparency, delivered in a customized and accurate way, becomes essential, especially in the wake of the 2008-2009 crisis. Today, advisors are being held to a higher standard than ever before. What advisors don’t know about an investment before recommending it to a client might hurt them.
Alternative investments present a challenge on two fronts. First, more investors are looking for alternative strategies, putting pressure on advisors to provide greater levels of transparency and due diligence. Alternative funds carry higher
buying and selling expenses and, more important, demand far more time and specialized experience to evaluate correctly. With less or no public information, this can be tough.
While alternatives require significant proprietary research, they can yield significant information and a level of detail that allows advisors to determine how these holdings might be impacted by volatility in the world and the marketplace. Again, here is an opening for advisors to differentiate themselves by delivering access to in-depth information in a way that links to the reporting system.
Take, for example, recent events in Libya, a country politically and economically tethered to oil. With hedge fund exposure to that part of the world, clients expect advisors to identify and minimize emerging risk. Without transparent information about underlying holdings delivered quickly and accurately, risk mitigation becomes more difficult.
In terms of customization, remember also that HNW clients like to monitor their accounts closely every day. The ability to display specific information and the depth to which they are able to view multi-generational holdings across all managers is important to them. It also allows them to restrict the depth of access to account information by family member and other involved parties. In terms of accuracy, the technology solution should have the capability to eliminate the inevitable loss of efficiency and accuracy when more people have access to data.