Risk analysis for private wealth clients

Risk analysis for private wealth clients
The importance of listening to the client
Global Products & Solutions / i-Risk
June 11, 2014
Introduction
ABN AMRO Private Banking aims to be the trusted advisor for its private wealth clients. In order to
achieve this objective, the bank needs to provide the advice that the client needs.
This means:
 Listening
 Understanding
 Advising
Note that this presentation showcases actual services from ABN AMRO Private Banking, in combination with a vision
for future developments. Not all presented services are offered to clients at this point. No actual client information is
shown, all details are fictive.
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ABN AMRO Private Banking in figures
Belgium
ABN AMRO MeesPierson
4.4*
81.2
24.2
Bethmann Bank
Luxembourg
8.9
8.1
Guernsey & Jersey
Neuflize OBC
27.6
168.3
2013 AUM EUR billions
PBI & AAMP combined
13.9
Asia
Market position
Clients
Relationship Managers
 Almost all our countries have a top-20 position in
 Servicing more than 100,000 clients through 53
 More than 530 relationship managers worldwide
their market, including #1 in The Netherlands, #2
France, #5 Germany and #15 in Asia.
 Ranked 3rd in the Eurozone and 7th in Europe.
domestic and international branches in 12
countries worldwide
 Our clients have entrusted €168.3 billion (per 31st
December 2013) of their assets to us
 We have over 1 million client contacts per year
working daily to build strong relationships and
provide the best possible service to our clients.
Supported by almost 4000 employees, working
hard to meet the individual needs of each one of
our clients.
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Global strength, local know-how, and the ability to leverage both
ABN AMRO Private Banking is a network of strong local private banks. Offering clients the
best of both worlds.
 Internationally, we meet the expectations of modern clients with a global perspective:
− specialist expertise across all key areas
− professional capabilities and capacity
− global networks
 Locally, our banks offer traditional private banking tailored to your needs:
− local know-how, networks and standing that can achieve more for our clients
− agility and ability to respond fast and effectively
− products and services tailored to local market needs and circumstances
 Ability to leverage our ‘best of both worlds’ network for clients:
− sharing local know-how and best practice
− offering clients local depth of knowledge and support when they’re abroad
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A dedicated team
Each client of ABN AMRO Private Banking International has his own client service team. This team
will fulfil all needs and keep the financial goals in focus.
The members of the client service team are:
• Private Banker
• The key contact person for all financial issues
• Reviews and records your specific financial wishes,
draws up an individual plan, co-ordinates the provision
of service across the Service Team
• Investment Advisor
• Assists in managing your investments and reaching the
clients goals, directly or indirectly
• Private Banker’s Commercial Assistant
• Ensures all requests are answered and processed
• Assists with day-to-day activities
• Product Specialists
• Provides all technical information upon request
• Specialized in various areas to assist with the clients
financial needs
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Discretionary Portfolio Management
Investing is becoming more and more complex and, therefore requires ample time, resources and
expertise. In case a client is neither willing nor in the position to manage investments himself and
want to be ensured that his wealth is in good hands, Discretionary Portfolio Management is the
solution. The client leaves the management of your investments to the global investment
professionals of ABN AMRO.
The key benefits are:
 Peace of mind through delegation of management of assets to ABN AMRO
 Full and direct implementation of ABN AMRO’s market views in the clients investment portfolio by
fully dedicated investment managers
 Permanent monitoring of the investment portfolio within the agreed investment framework and
guidelines
 Regular reporting on the investments
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Investment Advisory
If the client prefers to manage his investments himself, he wants to base his portfolio decisions on
thorough expertise. Our investment strategy and research recommendations are brought to the client
through our global network of investment professionals. On an ongoing basis the dedicated
investment advisor will consult with the client on the most suitable investment approach and
solutions. Key in this dialogue are the clients objectives, risk tolerance and investment horizon – the
clients risk profile.
We offer recommendations on:
 Asset, sector and regional allocation
 Line-by-line stocks and bonds
 Investment funds
 Alternative investments
 Foreign exchange
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The role of risk analysis in managing private portfolios
Risk analysis is becoming increasingly important in the management of investment portfolios of
private wealth clients. The traditional model of asset allocations and optimizing returns is still the
starting point in the industry, but developments mark a change.
 Clients becoming more knowledgeable and interested
 Increasing pressure from regulators, to fulfil the fiduciary duty
 Overall professionalization in the industry
 Continuing globalization, both of clients and of the industry
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Risk/return components in the traditional investment process
Client objectives
and risk appetite
Investment
proposals
Regular client
reporting
Continuous
advisory
process
Ad-hoc
alerting
Regular monitoring
‘duty of care’
Live
monitoring
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Client objectives and risk appetite
As an intake for new clients, or a yearly review with existing clients, a questionnaire often serves to
determine the risk/return profile of a client. A good interview with the relevant questions is worth
much more than an exercise ticking off boxes.
In a good interview, the investment advisor learns whether the client needs a standard or a custom
solution in wealth management. The investment knowledge of the client becomes apparent. A start
can be made with building a common understanding between client and advisor.
A good interview…
 Covers personal and financial objectives.
 Does not only quantify capital objectives, but also income objectives.
 Discriminates between risk appetite, risk awareness and ability to take risk.
 Though difficult, captures longer time horizons, spanning multiple years.
 Includes tax issues, wealth structuring, trusts, etc.
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Client objectives and risk / return profiles
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Regular client reporting
With an understanding of the clients needs and preferences, the cycle of the investment process has
started. The objective is to periodically (monthly?) inform the client on the state of his investment
portfolios. It offers stability and a point of reference for both the client and the investment advisor.
 Where possible, report on the status of the client’s objectives – even though a monthly cycle is not
suited for evaluating long-term objectives.
 Should include details on both risk and return, next to basic portfolio information.
 Typically based on asset allocations and volumes, in line with the traditional investment models.
 More advanced reports provide insight in elements risk budgets.
A report may be a reason for the client or for the investment advisor to take action.
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Regional Equity Allocation
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Comparing portfolio volatility with standard Risk / Return profiles
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Portfolio risk evolution (Value at Risk)
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Regular monitoring – ‘duty of care’
Next to the reporting for the client, the investment advisor also has to fulfil a ‘duty of care’ that goes
beyond the regular report. The advisor is supposed to look further than what the client wants / needs
to know himself. He should signal any undue risks.
 This includes the full understanding of where the risks are coming from, for example through a
risk factor analysis.
 It also includes other risk perspectives, like concentration risk, counterparty risk, compliancy with
recommendations, compliancy with strategic views and policy of the bank.
 This more advanced risk perspective also enables the management of investment advisory teams
– a set of proper risk indicators for every portfolio forms a very powerful database.
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Checks and balances
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Live monitoring
Next to a regular ‘duty of care’ monitoring, also a warning system needs to be in place – in order to
timely signal any unexpected occurrences in all portfolios governed by the investment advisor.
 A dashboard should warn the investment advisor and be actionable.
 It is key to only include the most important indicators and to only show the relevant items.
 Reporting and regular monitoring is periodic, not always up to date, whereas live monitoring
should always be up to date and close-by for the investment advisor. It should fit in his daily
workflow.
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Portfolio Risk Monitoring Dashboard
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Ad-hoc alerting
Once ‘the system’ signals a situation that warrants the client’s attention, the client needs to be
alerted. Traditionally, this was a letter or a phone call from the investment advisor. These days, social
media and apps arrive as additional communication media.
 Can be initiated by research, by developments in the portfolio, by the investment advisor, etc.
 Timeliness is key, next to notifying the client only in case of relevant issues
 Understanding the needs and preferences of the client is very important again: don’t send an
update on that one stock, if the client indicated that he does not want to know!
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Research as one possible initiator of alerts
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Transaction proposals
Most of the communication discussed is informative, with a number of high-level advices given.
Making an advice concrete, a transaction proposal can present the client with the impact of the
proposed transactions to the profile of the portfolio:
 This hits the heart of proper portfolio management, with all reasons for balancing a portfolio
 The key is to strike the balance with the experience of the client and his knowledge
 Simple illustrations should help in explaining the proposal to the client, while also the more
sophisticated client with more need for details is served
While the transaction proposal helps the client to take decisions, the investment advisor is guided
through the wealth of information to prepare these decisions. The advisor has the task to combine all
information and to assess what advice to give:
 What are likely buy and sell candidates?
 Do all the securities with relatively high risk also have a large expected return?
 Does this proposal help converge to the policy of the bank?
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Risk thermometer
Risk score
Current portfolio (22,8%)
After accepting proposal (11,4%)
Tactical Asset Allocation (11,4%)
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Scenario analysis
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Fan Chart
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Full circle in the traditional investment process
Client objectives
and risk appetite
Investment
proposals
Regular client
reporting
Continuous
advisory
process
Ad-hoc
alerting
Regular monitoring
‘duty of care’
Live
monitoring
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Challenges
As indicated at the start, this presentation sketches a combination of actually implemented
functionality as well as vision for the future. There are still many challenges ahead of us.
Listening:
 Really understand tomorrow’s needs of the client – innovation!
 At the same time, also be able to answer to the needs of clients today
Understanding
 Be able to explain the difficult topics in investing to your client – the regulator expects you to
 Be at the forefront of industry developments – innovation!
Advising – bring theory into practice:
 Be able to cope with the scale: not only for a few portfolios but for all 100k portfolios
 Systems, projects, budgets, etc., etc.
 Data, data and data
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