Preparing clients and advisers for a volatile world

Keywords:

Strategy, Value proposition

The look-and-feel of wealth management in Asia is changing. And amid a new investment landscape, advisers need to alert their clients to a new world which will require greater risk to secure decent returns, says Byron Murphy of Globaleye.

There is a significant change underway in the wealth management industry across Asia.

Much of this is being driven by a combination of regulation and challenging investment markets. Consolidation is the result across various segments, via mergers, downsizing or exits from markets altogether. In the financial advisory space, this is getting translated into a large number of individual advisers exiting the industry.
These developments over the past two or three years are a sign of an overhaul that will hopefully lead to a streamlined and more rational industry.
“We have to go through these times before the green shoots can come through again,” says Byron Murphy, managing director - private wealth management at Globaleye in Singapore.
“This has to happen; in fact I feel it’s been long overdue,” he adds.
At the same time, wealth managers have to prepare their clients to adjust to the new paradigm of a volatile world where getting returns on investments involves taking more risks.
Such a change means advisers should look at starting to charge a fee for advice that matches their clients’ needs, including the growth of their clients’ wealth.
“Advisers need to be very clear with clients about whether they are looking for asset protection or seeking growth,” explains Murphy.
“If it is growth, then investors need to accept the fact that short term volatility is higher today than the accepted historical norm. So if clients are indeed seeking investment return they need to accept a degree of risk and embrace the intrinsic volatility characteristics of the assets they are buying.”
A new way to get paid
These dynamics also mean that advisers should look to be paid differently from how they were previously.
Globaleye is approaching this with two types of model.
One of these provides a service where, for a low ongoing annual management fee, the firm will manage client’s money with a more traditional focus towards diversification, correlation, risk profiling, and a longer-term view.
“However, it is different when a client is essentially saying ‘make me money’,” says Murphy. “If an investor is genuinely seeking absolute return and looks to engage an advisor to facilitate this, then it is more appropriate to move towards a suitable performance fee arrangement.”
This is based on his experience of working with international private clients for 20 years, the vast majority of which has been spent with executive level expatriates in Singapore.
A tough landscape
At the moment, Singapore is not only witnessing a fall in the number of expatriates in general – the target clientele for Globaleye – but it is also ushering in the Financial Advisory Industry Review (FAIR), which re-evaluates standards across the wealth management industry and aims to raise standards.
The reduction in the number of expats stems from two key areas, the general economic slowdown coupled with the government initiatives focusing on core Singaporeans.
Plus, not only are some of these expats returning to their home countries or moving to a new one, but a higher proportion of those who remain in Singapore are increasingly worried about job security.
But the firm is looking to dampen the impact of this by focusing on its own clients and investors with existing accounts/plans in Singapore.
At the same time, investors want more transparency about their portfolios, in turn putting existing wealth management services in Singapore under considerable stress.
“The prevailing economic situation, soon to be introduced remuneration capping, government initiatives, and client behaviour have all culminated in an environment which is adversely affecting most firms,” says Murphy.
Yet he doesn’t consider that the new FAIR regulations are something for financial advisers to worry about far from it in fact, even though total clarity on the implementation is yet to be finalised.

Much of this is being driven by a combination of regulation and challenging investment markets. Consolidation is the result across various segments, via mergers, downsizing or exits from markets altogether. In the financial advisory space, this is getting translated into a large number of individual advisers exiting the industry.

These developments over the past two or three years are a sign of an overhaul that will hopefully lead to a streamlined and more rational industry.

“We have to go through these times before the green shoots can come through again,” says Byron Murphy, managing director - private wealth management at Globaleye in Singapore.

“This has to happen; in fact I feel it’s been long overdue,” he adds.

At the same time, wealth managers have to prepare their clients to adjust to the new paradigm of a volatile world where getting returns on investments involves taking more risks.

Such a change means advisers should look at starting to charge a fee for advice that matches their clients’ needs, including the growth of their clients’ wealth.

“Advisers need to be very clear with clients about whether they are looking for asset protection or seeking growth,” explains Murphy.

“If it is growth, then investors need to accept the fact that short term volatility is higher today than the accepted historical norm. So if clients are indeed seeking investment return they need to accept a degree of risk and embrace the intrinsic volatility characteristics of the assets they are buying.”

A new way to get paid

These dynamics also mean that advisers should look to be paid differently from how they were previously.

Globaleye is approaching this with two types of model.

One of these provides a service where, for a low ongoing annual management fee, the firm will manage client’s money with a more traditional focus towards diversification, correlation, risk profiling, and a longer-term view.

“However, it is different when a client is essentially saying ‘make me money’,” says Murphy. “If an investor is genuinely seeking absolute return and looks to engage an advisor to facilitate this, then it is more appropriate to move towards a suitable performance fee arrangement.”

This is based on his experience of working with international private clients for 20 years, the vast majority of which has been spent with executive level expatriates in Singapore.

A tough landscape

At the moment, Singapore is not only witnessing a fall in the number of expatriates in general – the target clientele for Globaleye – but it is also ushering in the Financial Advisory Industry Review (FAIR), which re-evaluates standards across the wealth management industry and aims to raise standards.

The reduction in the number of expats stems from two key areas, the general economic slowdown coupled with the government initiatives focusing on core Singaporeans.

Plus, not only are some of these expats returning to their home countries or moving to a new one, but a higher proportion of those who remain in Singapore are increasingly worried about job security.

But the firm is looking to dampen the impact of this by focusing on its own clients and investors with existing accounts/plans in Singapore.

At the same time, investors want more transparency about their portfolios, in turn putting existing wealth management services in Singapore under considerable stress.

“The prevailing economic situation, soon to be introduced remuneration capping, government initiatives, and client behaviour have all culminated in an environment which is adversely affecting most firms,” says Murphy.

Yet he doesn’t consider that the new FAIR regulations are something for financial advisers to worry about far from it in fact, even though total clarity on the implementation is yet to be finalised.

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