The days of a plain vanilla financial advisor are over. Or so it seems. Relationship managers, wealth managers or, for that matter, private bankers need to transform from just being investment advisors for their wealthy clients to being a true financial partner, say experts.
At a time when private bankers and wealth managers in the region and the world are hard searching for options to invest the money of their high net worth individuals (HNWIs) clients, they need to move up from just being an advisor to being more transparent, open, simpler and closer to their clients than earlier.
"With customers becoming ever more demanding, it is imperative that financial advisors are more proactive and engaged with their customers and provide them with timely information that they require to be able to make informed decisions. This would assist them in acquiring new customers as well as retaining existing ones," Ishrat Kiyani, Head of Premier Banking and Wealth Management, UAE, HSBC told Emirates Business.
A recent research conducted by Heinrich Weber, Executive Vice-President of one of Switzerland's leading private banks and author of The Ultra High Net Worth Banker's Handbook, said with ultra high net worth individuals (UHNIs) clients seeking not only to protect their assets but also to exploit new investments, private bankers need to improve both their technical and human skills and expand their international network.
Weber said wealthy investors have increased their expectations and wealth managers must now develop a wide range of competences in order to survive in this competitive industry.
He said because of the markets meltdown during 2008 and last year, the difference between good and bad relationship managers has become more apparent. It is important that relationship managers understand they have to be closer to their clients during good times as well as bad times and deliver them simple solutions.
"During the downturn and before that, many complex products were sold to clients by relationship managers, but now there is a strong focus on transparency and less complex instruments, he said.
He said private bankers learnt several key lessons from the slowdown, apart from having a diversified investment portfolio.
"The first [lesson] is that private bankers have to be extremely open and transparent with respect to the risks of investments. It is also important to create a model of risks involved in a portfolio and explain the expected returns to the client. Also, they should explain with all transparency the risks as well as potential losses that can occur when things don't go as forecast," he said.
According to his research there are around 20,000 UHNIs in existence today, with more than 25 per cent or 5,150 of them, based in the US. Among them, they possess wealth that exceeds $5 trillion (Dh18.35trn), which is equivalent to 10 per cent of the world's estimated total wealth.
"There is much more responsibility on the relationship managers now as they not only have to deal with investments of their clients but also look at the latter's needs on both their assets as well as liabilities side," said Deanna Othman, General Manager, Premium Banking, Standard Chartered UAE.
She said relationship managers need to have understanding of the investment and lending principles as well as how to position their customers' goals along with the liquidity position.
Earlier, banks as well as relationship managers were seen just as advisors on investments but now their profile is more broad-based and they are being geared towards being a true financial partner for their customers, she adds.
For wealth managers, one of the key lessons to remember apart from diversification, is that any investment should be considered with a long-term time horizon, of five years or more, said Kiyani.
"Also, if a particular asset class has demonstrated good performance that does not guarantee it will necessarily deliver a strong performance going forward. Investments can certainly go up as well as down. A good way to even out volatility is to drip feed money into the market, ie making regular savings each month," he said.
Having a short-term investment horizon, chasing fads or past performance is also a big mistake wealth managers have leant, Kiyani said.
"People may look at a particular asset class that has performed well and follow it blindly, without doing any research. Such herd mentality can lead to a bubble. For some people it is also tempting to pull all of their money out of capital markets if they see it falling. But those who do this often find they have taken their money out at the bottom of the market, only to see it rebound soon after. We would say it is generally not a case of timing the market but time in the market that counts," he added.
Kiyani said as with any investment in the stock market, there is a chance that it could fall as well as rise. Therefore, never invest money that you cannot afford to lose.
Also, there is no such thing as a free lunch and investing is about taking risks. As a general rule of thumb, the bigger the potential return, the bigger the risk on the down side, he added.