Private Wealth Managers failing to customise services for their clients, survey finds

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Written by Ray Clancy

Friday, 17 December 2010 10:43

Private Wealth Managers see the relationships with their clients as the principle source of added value but they fail to exploit this close relationship to customise the services they offer their clients, a survey says.

When portfolios are designed for clients, market factors are taken into account more frequently than are the individual characteristics of the clients, the European wide survey by EDHEC-Risk Institute also shows.

Wealth managers often assess their clients’ level of risk aversion, but other individual risk factors such as longevity risk, individual income risk, and individual spending objectives, are accorded much less importance.

Private Wealth Managers also generally fail to provide state of the art means of horizon dependent asset allocation. ‘Current practice is inconsistent in the sense that horizon effects are recognised as important but the factors that generate horizon effects, stochastic outside income and time-varying equity risk premia, are not,’ it says.

They also rarely work with explicit models of mean reversion of the equity risk premium and 77% of respondents said that they do not model long term equity returns at all.

While they see the potential of taking into account client specific spending objectives, only a small minority actually attempts to realise this potential. The methods Private Wealth Managers are most familiar with are traditional investment analysis, which focuses on direct alpha generation (fundamental and macroeconomic analysis), or fund-selection concepts, which focus on accessing alpha indirectly (performance analysis and due diligence), it adds.

‘These concepts, by aiming mainly at alpha, are unrelated to client specific spending objectives, and PWMs acknowledge that they are of little value in achieving these objectives. Together, PWMs who are unfamiliar with ALM and those who are familiar with it but do not use it make up a majority of our respondents,’ the survey explains.

It adds that the lack of adoption of ALM has more to do with unfamiliarity with the concept and with the perceived difficulty of using it than with sceptical views of its usefulness.

The survey, carried out in partnership with Ortec Finance draws on responses from 159 private wealth managers whose clients include the mass affluent with financial assets of less than $1 million as well as so-called ultra high net worth individuals with financial assets of more than $30 million.

The 159 respondents were mainly senior European investment professionals working in private banks, asset management firms, and family offices with more than half representing organisations managing more than €1 billion of clients’ money.