Before entrusting third parties with the management of its assets, it is important for a client to realize what its risk profile is, what type of asset manger and what type of custodian bank he or she wishes to use. There are thousands of service providers and often it is difficult to make a good choice.
We can assist a client in choosing a custodian bank and an asset manager that meets his requirements and expectations. Some might look for a smaller private bank and others prefer a bank that is present in many countries. Similarly the types of asset managers range from small independent companies to large international banks. Different asset managers pursue different strategies. Every strategy reflects a framework of beliefs and is a result of how the individual asset manager thinks an appropriate performance can be achieved. We believe that it is important for every client to understand the strategy of its asset manager. Only then one can decide and judge whether the strategy is appropriate for him and cost-effective.
In order to derive an appropriate asset allocation the asset manager needs to define the risk profile, the investment horizon and the reference currency of the client. Only then an asset manager can suggest an asset allocation that reflects not only the risk taking capability but also the risk taking willingness of the client. These two factors not necessarily correspond.
In order to achieve the above-mentioned goals we can assist the client in:
- Defining an asset allocation that meets the client?s risk profile
- Choosing an asset manager that implements the defined asset allocation
- Choosing an appropriate banking jurisdiction
- Choosing an appropriate custodian bank
It is important to note that in the end it is always the client who decides what to do and which party he wishes to work with. However, we will do your best in assisting a client to make a conscious and sensible decision.
Defining an asset allocation that meets the client?s risk profile is the task the importance of which is often heavily underestimated. Scientific studies show that long-term the strategic asset allocation is responsible for 80-90% of the performance of any given portfolio. In other words stock picking, market timing and the asset manager share the remaining 10-20% only.
We derive a strategic asset allocation from a questionnaire that the client needs to complete. The questionnaire is based on Behavioral Finance. Every client who has completed the questionnaire will receive an eight to twelve page analysis of his risk profile. It is then up to the client whether he wishes to follow the recommendation of the analysis or not. Experience shows that clients often are surprised about the content of the analysis and see that they have previously taken more risk than they thought they would. The reasons for this are manifold. One of the reasons is that marketing of asset managers usually focuses on products rather than on strategies. Another reason arguably is that the incentive plans of asset managers often favour relatively risky asset allocations.