{"id":1643,"date":"2012-03-03T16:36:52","date_gmt":"2012-03-03T14:36:52","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=1643"},"modified":"2012-03-03T16:36:52","modified_gmt":"2012-03-03T14:36:52","slug":"el-riesgo-cliente-causa-o-excusa-de-una-mala-gestion","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/el-riesgo-cliente-causa-o-excusa-de-una-mala-gestion\/","title":{"rendered":"Customer Risk: Cause or excuse for bad management?"},"content":{"rendered":"

\"\"This week I came across an article published in FundsPeople titled \u00abClient risk in private banking management<\/a>\u00ab. These are obviously arguments put forward by bankers and former private bankers, which already distorts considerably the reality of what wealth management in general and financial investment in particular should be, as we said back in 2008 in \u00ab...\".\u00abThe unbearable lightness of management<\/a>\u00bb(private banking). We advance this warning because the FundsPeople article only deals with the management of bank investments, i.e. money invested in bank investment products, shares handpicked by the bankers and ex-bankers on duty and other investment funds listed in the bank's sales catalogue. We want to make it clear that there is a fundamental deviation from the way we should treat families' money, which should include investments in unlisted companies (private equity), real estate investments and other assets in which, in order to invest, the money must come out of the bank's account. Obviously, private banks do without such investments, as their mission is to keep their clients' money in the bank that generates their income at the end of the month.<\/p>\n

<\/p>\n

And often other advisory firms, described as independent (most of which are also made up of former private bankers, with some exceptions<\/a>), they retain, to a certain extent, the same vices, bad habits and commission-based way of life as when they were working openly<\/em> for banks. Having said all that, let us now turn to some insightful reflections on the aforementioned article by FundsPeople.<\/p>\n

\n

Before we talk about the Risk<\/em> Client, we should correctly define the concept of Risk<\/em>, starting with the fact that the banking sector often deliberately confuses the risk to the client<\/strong> with the risk to the bank<\/strong>. The first must be the risk to the family of suffering the permanent loss of part of their assets, whilst the second is the risk to the bank of losing the client and, consequently, losing part of its business. Another consideration is that investments may fluctuate up or down in the short term, and that a family may not tolerate such fluctuations (downwards). But that, as the Master explained for the umpteenth time<\/a> Last week, it wasn\u2019t called \u2018risk\u2019 but \u2018volatility\u2019, which is something very, very different.<\/strong> The fact is that this concept \u2013 volatility \u2013 is probably the least acceptable to families with no knowledge of investment, who entrust their assets to professional advisers who are supposedly specialists. Consequently, volatility\u2014which is poorly understood by investors\u2014becomes a formidable enemy to the interests of financial advisers, as it leads to the loss of clients by the private banking firm and\/or the former private banker who has been retrained as an EAFI. And it must be stated loud and clear that the priority of the entire sector is not the sound growth of its clients\u2019 wealth, but rather the retention of their respective operating accounts \u2013 that is, the profits that each client generates for the organisation for which they work.<\/p>\n

\"\"Because of this manipulation of the concept of risk for the client \u2013 which has become the adviser\u2019s risk of losing or seeing their business decline \u2013 investment management turns into an absurd quest for the absence of volatility, whilst pandering to clients\u00ab desires in the process. And it matters little that this desperate quest leads to inevitable mediocrity in returns and wealth growth. The only thing that matters to advisers and their uninformed clients is not seeing losses in the short term, as this would lead to them losing the client, and consequently to the client switching advisers. This obsession with eliminating volatility \u2013 and its potential short-term capital losses \u2013 creates the perfect breeding ground for these advisers, who are desperately trying to retain their clients, to foist all manner of \u00bbguaranteed\u2019 products by the respective banks with\/for which they work (if, of course, one can even call a \u2018guarantee\u2019 what the 99% of the developed world\u2019s banking sector can offer these days). Because for most businesspeople and savers, their bad experiences with previous financial investments mean that they often aspire to little more than simply not losing money on the investments they entrust to their bankers. The result, logically, is the loss of purchasing power<\/strong> in the medium and long term, as well as a acceptance of the risk of permanent losses<\/strong> far greater than clients (and even some incompetent advisers) realise, despite what their MiFID regulations say and the grandiose terms they repeat ad nauseam like a mantra, such as: risk-free assets, fixed income, guaranteed products, conservative profile, and a host of other high-sounding euphemisms. The intrinsic risk of many of these investments in the current \u2018New Normal\u2019 environment is far greater than the financial sector (let alone investors, of course) would ever have suspected just a decade ago, despite the fact that they may have low and accepted levels of volatility. But as we start from the premise that \u2018risk\u2019 for the client is confused \u2013 whether naively or maliciously \u2013 with \u2018risk\u2019 to the adviser\u2019s interests, and furthermore that \u2018risk\u2019 is equated with \u2018volatility\u2019, the explosive cocktail is all set. It is only a matter of time before this concoction explodes in the Family\u2019s face. But the saddest thing is that the client\u2019s financial misfortune is nothing more than another notch in the belt of the private banking gunmen, who remain constantly on the hunt for new prey to maintain their variable remuneration.<\/p>\n

The aforementioned FundsPeople article discusses the risk arising from a client\u2019s interference in investment decisions regarding an advised portfolio. It is true that there is what is known as \u2018Client Risk\u2019, defined as the distortion in the investment decisions that advisers propose to their clients, due to changes imposed by the clients themselves as the owners of the assets. In many cases, this risk causes real havoc, because some clients are unaware of their own ignorance and refuse to learn. But be warned \u2013 and here comes the first surprise \u2013 this distortion does not always lead to increased risk. This is because, on some occasions, clients\u2019 common sense and independent perspective \u2013 in contrast to the recommendations of their advisers, which are often packed with products from the sales catalogue of the firm they work for \u2013 bring a clarity and prudence to asset allocation that the portfolio previously lacked.<\/p>\n

In other cases, however, it is true that interference from investors thwarts any coherent portfolio allocation strategy. And it wildly upsets the prior analysis of returns, risks and acceptable levels of volatility in the short, medium and long term. There is no more dangerous combination than an investor who knows nothing and, moreover, is unwilling to learn; their erratic decisions will prove fatal. It is true, however, that in many cases this attitude stems from having experienced failure after failure in previous years, during which they relied on the \u00abexpertise\u00bb of private banks and other advisers independent<\/em>. Faced with such incompetence and\/or corruption, they decide that they themselves, with or without help, will do a better job. And they will be right, whether they fall into the hands of unsuitable independent advisers or throw themselves into the arms of \u00abfree<\/em>\u00bbby bank advisers, something which, unfortunately, happens in most cases.\".<\/p>\n

\"\"A banking adviser may well be technically competent (there are some, though they are by no means common), but the conflict of interest (to put it mildly) and their utter lack of attention to and interest in their clients\u2019 assets \u2013 which are not, and cannot be, held at their own institution \u2013 mean that their advice is biased, corrupt and, by any measure, incomplete and detrimental. Ultimately, this amounts to a sentence of permanent asset losses or, at best, utter mediocrity.<\/p>\n

Returning to the FundsPeople article which exposes the Customer Risk<\/em>, the author is quite right when she says that such interference in decision-making substantially distorts the risks, volatilities, behaviour and potential of portfolios. However, her arguments must be viewed critically and sceptically for various reasons: amongst them, the institution\u2019s prioritisation of the risk of losing client trust (leading to clients switching to competitors) over the risk of permanent loss of the investor\u2019s assets. And the fundamental error committed by the banking and financial sector in general when defining risk and volatility. All this without forgetting the conflict of interest perpetuated by the sector \u2013 not only by the banks but also by a large proportion of the so-called \u2018independent advisers\u2019. For all these reasons \u2013 reasons for which the banking and independent financial advisory sector should be ashamed \u2013 \u2018client risk\u2019 is not always what it is made out to be, nor should it be used as an excuse for poor management. In any case, sound wealth growth as a whole will come first and foremost from family offices and multi-family offices (mind you, there are many here too who are jumping on the bandwagon of comprehensive wealth management but are, in reality, nothing more than portfolio managers), rather than from the financial services sales sector, with or without clients\u2019 interference in the advice provided by bankers and former private bankers.<\/p>\n

A regrettable example of this is provided by the comments made by Enrique Marazuela \u2013 none other than the Head of Investments at BBVA Private Banking \u2013 in the aforementioned article: \u00abIt is essential to convey to clients that markets are random, that it is very difficult to beat the markets, and that, furthermore, adding manager risk increases the risks to the portfolio without necessarily increasing returns<\/em>\u00abIt\u2019s outrageous that the Chief Investment Officer of one of the country\u2019s two most powerful private banking institutions should declare, without a shred of shame, that investors must resign themselves to the fact that \u2013 according to him \u2013 the markets are random! Investors should forget about beating the markets! \u2026of course, as their products never beat them in the medium and long term\u2026 And that clients must accept that management \u2013 for which they charge exorbitant fees, both directly and indirectly \u2013 increases risk and does not necessarily boost returns! Pay up, switch off and let\u2019s be done with it. Unbelievable.<\/p>\n

Of course, these pithy remarks made by BBVA\u2019s Head of Investments would be enough to fill several articles\u2026 In the meantime, and to detox from all this mediocrity, I recommend taking a breather by re-reading \u00abYou can\u2019t see the wood for the trees<\/a>\u00ab. And for the sake of your assets, don\u2019t believe a word of what these suits say. Client risk does exist, but The unregulated banking sector inflicts even more damage<\/a>. I can assure you that our operating theatre has treated countless patients with lacerations severe enough to warrant a visit to the emergency department.<\/p>\n

;<\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"

Esta semana lleg\u00f3 a mi pantalla un art\u00edculo publicado en FundsPeople titulado \u00abEl riesgo cliente en la gesti\u00f3n de banca privada\u00ab. Obviamente se trata de unos argumentos esgrimidos por banqueros y ex-banqueros privados, lo cual distorsiona ya considerablemente la realidad de lo que debe ser la gesti\u00f3n del patrimonio en general y de las inversiones […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[54,51,57,58,41,42,39,40,52,37,48,49,50,55,56],"tags":[],"class_list":["post-1643","post","type-post","status-publish","format-standard","hentry","category-asesoramiento-patrimonial-deportistas-artistas","category-banca","category-funcionamiento-family-office","category-crear-mi-propio-family-office","category-economia-y-finanzas","category-estrategia","category-crear-mi-propio-family-offices","category-gestion-financiera","category-asesoramiento-patrimonial-multi-family-office","category-reflexion","category-asesoramiento-patrimonial-multi-family-office-crear-mi-propio-family-offices","category-funcionamiento-family-office-crear-mi-propio-family-offices","category-crear-mi-propio-family-offices-crear-mi-propio-family-offices","category-necesito-un-family-office","category-que-es-un-family-office"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/1643","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=1643"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/1643\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=1643"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=1643"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=1643"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}