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Asset management products: A silver bullet for advisors

Commentary by Sabine Said, Executive Vice President of Moventum S.C.A.

What connects the topics of stock market boom, bond yields at rock bottom, negative interest rates, Afghanistan, climate change and technological advances? Each of these topics offers opportunities or raises fears; each of them can impact investment decisions and performance. Each of these topics can be passionately discussed and analysed. And advisors are asked about each of them by clients – and are expected to provide a plausible answer. But that answer can vary widely depending on the selected products.

Research on neuro-finance and the derived data on behavioural finance show that individuals – clients – are weighting these topics very differently. There is no single overarching issue. While one client considers climate change to be a threat, another one views it as an opportunity. Consequently, an advisor must have an appropriate answer to every question. To be able to do so, advisors are forced to dig deep into their products, to read and weigh research reports and background information – all the more so the more different products, ranging from ETFs to bonds, from equities to funds, an advisor has allocated to client portfolios.

But it is not only the topics that are varying widely. The effects on the various products also range from a possible positive to a neutral to a strongly negative effect. Advisor should and must consider all of this and be able to answer all possible questions. That is certainly difficult. In addition, advisors have to answer for their answers. But what is the right response to the question about the effects of climate change on the shares of XY AG?

The effort is reduced enormously when fewer products are used. Or if an asset management product is used instead of numerous individual products. The advantage: One manager takes care of all these issues. Advisors are much more relaxed in dealing with their clients, because they do not have to research and analyse and vouch for the individual products.

In addition to the advantages in terms of information and reporting needs around the product, it is also much easier to scale. Asset management requires only a one-time application form and the signing of an asset management mandate. In the end, the client will then be invested in a very large number of ISINs. Liability is also significantly reduced, as the brokerage of an asset management contract is not advice that requires a licence.

Asset management portfolios fare well especially when compared to individual stocks or even individual ETFs. Although ETFs are repeatedly praised for their stable performance and low costs, they are only tracking indices – they are rising with them, but also falling with them. Obviously, if you rely on a single actively managed fund, you are buying into risk. Even, and especially, when it comes to best-selling funds from individual star managers.

When using a portfolio composed of various active funds, however, the risk is reduced. If, moreover, fund selection is regularly reviewed, additional security is added. Asset managers who keep an eye on the markets and act accordingly can significantly limit the risk of losses in down markets. From an advisor’s point of view, portfolios are as simple as they are optimal for many clients. In this respect, the interests of both clients and advisors come together in perfect unison.

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