"One Size does not fit all"

Although standardization brings efficiency and scale, when it comes to the most sophisticated and exigent clients one size does not fit all.

In the complex world of wealth management, standardization and categorization undoubtedly bring numerous advantages in terms of automation, scaleability and above all contained costs, with robo-advisors probably the starkest example of this trend. However, when it comes to the realm of sophisticated UHNWIs (Ultra High Net Worth Individuals), it is evident that one size does not fit all.

Although many banks speak about tailor-made and bespoke service, it is unfortunately a reality that in several cases their offering is just a brush-up or a tweaking of their standard service based on a superficial assessment of the client-specific needs.

And there is a good reason for it: understanding your client in depth, mapping their wealth dynamics, modelling their specific liquidity profile, decomposing each and every risk exposure; it is a very intense and time-consuming process, hence costly.

"Without exaggerating, there are hundreds of variables that can, and most of the time should, be analysed and taken into consideration when engineering a bespoke wealth management solution for a client."

It is exactly like a tailor-made suit: it takes more time and labour, but it is the only one that fits just perfect. And so should private banks – spending time and resources to provide the utmost level of service for their clients. Without exaggerating, there are hundreds of variables that can, and most of the time should, be analysed and taken into consideration when engineering a bespoke wealth management solution for a client. Let’s take the example of an entrepreneur with a company active in the automotive supply chain, looking for a bespoke capital growth investment portfolio.

Before even starting to look at bonds, stocks and any other investments, an investment analyst should look at the entrepreneur’s company, and map what risks the client is already exposed to. Is the company sensitive to commodity prices? What currency moves are beneficial or detrimental? What regions are relevant? Is the trade war a risk? Is it at risk of disruption by the electric car?

And many other questions should be answered. These questions help identify the market risks and factor sensitivities that the client’s present and future wealth is already exposed to. These exposures should be neutralised in his investment portfolio, since the worst thing to do would be to create redundancies and hence not enough diversification in his financial assets. An even bolder approach would be to create a negative correlation to the factors his company is exposed to, and hence a partial hedge.

"Wealth planning is another area where customisation is essential in order to reach the highest possible level of service."

The same level of understanding should be used to analyse the unique liquidity profile of each client, in terms of future investments and disinvestments, assets distribution, and obviously investment horizon. Wealth planning is another area where customisation is essential in order to reach the highest possible level of service. International clients with assets and family members located in different countries, different heritage issues and fiscal environments, require an attentive and deep assessment to structure the necessary solutions.

Obviously the level of complexity that real tailored wealth management involves can rarely be met within one single organisation, therefore partnering with the right players and being part of the Luxembourg ecosystem can be a strong and durable competitive advantage, not only at European but also at global level.

On a final note, in the last few years wealth managers have been increasingly threatened and challenged by various forces, new entrants and potential disruptions. Nevertheless by focusing on high value added products and services delivered with high quality and professionalism to the right clients, the room for growth is still large. In this case technology should be viewed and considered as an enabler, a tool to provide an even higher level of service, and certainly not as a threat.

Stefano Torti
Group Head of Asset Management & Advisory

( source: Paperjam )

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