Wealth manager or manager of emotions?
As the crisis in Ukraine continues, market volatility remains elevated as investors scramble to react to frantic headlines and commentators readjust their outlooks in light of the energy supply crunch that is exacerbating an already heightened inflationary backdrop. Much like the start of 2020, when the emergence of Covid-19 shattered early-year optimism of a subdued but positive period of economic growth, the Russian invasion has stopped risk assets in their tracks as summer 2022 approaches. While our clients’ portfolios have next to no direct exposure to either Russian or Ukrainian assets, the inextricable importance of Russia’s contribution to the world’s (and particularly Europes’) energy supply has drawn in global markets in a stark reminder of how much the economy still depends upon oil and gas. Prior to the invasion, we were particularly focussed on inflation and the actions of central banks, and now with energy and commodity prices spiking higher this focus is more warranted than ever.
In general, we are not minded to make significant changes to our investment views while volatility is heightened and the headlines are coming thick and fast, though we are afforded this luxury by our structurally diversified and all-weather approach, and prior reluctance to chase enhanced equity returns at the expense of sensible valuations or enhanced fixed-income yields at the expense of credit quality and low duration. Going into the crisis with a defensive stance in terms of relative equity weighting compared with benchmarks and competitors, in addition to conviction allocations to markets such as the UK and Japan for cyclical and valuation reasons means that portfolios have held up pretty well. Furthermore, our longstanding and unfashionable positons in precious metals and inflation-linked securities have proved their worth beyond doubt as safe havens when other asset values are tumbling, while having a larger allocation to cash than average provides flexibility to quickly return to a pro-risk stance should conditions improve.
Currently the geopolitical landscape is dominating sentiment, and we do not think that second guessing the outcome of the situation in Ukraine is a good way to make investment decisions for the longer term, nevertheless it is not all doom and gloom and some prudent portfolio rebalancing (i.e. topping up equities back to our long-term target weights) may well turn out to be a profitable strategy.
When being bombarded with breaking news and one headline more alarming than the previous one our investment outlook appears to be most calm reading of the week and we wanted to take this opportunity to explain why this is the case.
“It is therefore the most important quality for the wealth manager to manage the emotions of the investors and clients. Having that relationship with your wealth manager allows you to bring events into perspective and taking analytical decisions based on best available facts and alternatives.”
The history shows us that there is always something to be concerned about, but taking a long term view has proven to yield better results. Quick look at the past couple of years alone reveals dozens of reasons to panic, sell and never invest again. It is therefore the most important quality for the wealth manager to manage the emotions of the investors and clients. Having that relationship with your wealth manager allows you to bring events into perspective and taking analytical decisions based on best available facts and alternatives. For any investor it is easy to get carried away with high expected returns as well as getting overly concerned about frantic headlines. A trusted wealth manager has prepared you and your portfolio to thrive during the good but also during more challenging times.
We live in a complex world and are bombarded with information constantly. Our problem is not lack of information, quite the contrary in fact. Today, it’s much more important to filter and know what information is relevant, how to de-complex it and what to make out of it.
A successful wealth manager needs to possess the classical analytical tool kit, technical support and access to relevant information. Many financial services providers consider this to satisfy their clients and therefore have converted large part of the industry into commodity when seeking to increase profit margins. The approach has arguably certain advantages and it may work well in “normal” market conditions but it fails terribly short compared to personalized service.
A true trusted advisor is purposeful, having a clear mission to serve clients and help them to reach their goals. Business relationship is not measured by basis points but gaining the trust by doing the right thing. In order to gain trust and long-term relationship the advisors must be empathetic and authentic, few things the robot advisors or artificial intelligence do not recognize. Empathetic advisors put themselves in their clients’ shoes and work to understand what matters most to them.
“Today, it’s much more important to filter and know what information is relevant, how to de-complex it and what to make out of it.”
Good advisors are foremost honest and might tell you things you don’t want to hear. They set realistic expectations about controllable actions and probable outcomes. While the best advice may not be easy to hear, great advisors communicate essential truths about money and investing so that clients have realistic expectations about their wealth.
When you have the right advisor your wealth management is disciplined and not driven by impulsive actions. Effective advisors know the importance of preparing clients to navigate changing markets and apply discipline at crucial times, which can lead to a more enjoyable and promising financial journey.
Offering the client a product that fits to his profile is not the same thing than offering the client the best product. I would argue that achieving a role of a trusted advisor is virtually impossible unless one can be truly independent with open architecture where the client is empowered to decide what is right for her without constrains or vested conflicts of interests.
At Banque Havilland we believe that combining technical innovation with continuous close human interaction with our clients yields solid financial performance and peace of mind to build and protect wealth for generations.
Juho Hiltunen
Deputy CEO of Banque Havilland S.A.
(source: AGEFI Luxembourg (French version))
