Bankers must understand why clients adopt their behaviors, whether they are healthy, unhealthy, rational or irrational, self-interested or self-destructive. By understanding this, both clients and bankers can gain a clearer view of each client’s perception of risk and return.
Most of all it may be the key to generating sustainable returns in the future. One of the most common questions asked among private banking clients is; who is the best private bank? There is no clear answer explains Richard Cayne. It appears that no one can agree on what they mean to interpret when talk turns to portfolio returns and performance and getting value from a private bank.
A survey by State Street’s Centre for Applied Research in 2012 showed that while 40% of responding investors considered performance as the most important quality of their investment service provider, 24% of those surveyed conversely said that performance was their largest weakness. Ironically, investors value investment performance far above other aspects of private banking service, but also feel that is it’s the weak part of the private bank’s service explains Richard Cayne of Meyer International Ltd.
Perhaps clients and private banks need to remind each other that they have to agree on performance standards and measurements. Changing and often confusing explanations of product and portfolio performance lead to mistrust and cause investors to conjure irrational psychological barriers that work against their interests.
The Center for Applied Research study also showed that when retail investors were asked what steps they needed to take over the next 10 years in order to prepare for retirement, 40% of the respondents said they needed to assume a ‘more aggressive’ investment posture. Why are retail investors, young and old, the high and ultra-high net worth and those of modest means flocking to cash while they fully realize they must be more aggressive to prepare for retirement or overcome the low returns of being in cash?
Perhaps the contradiction lies in confusing objective versus subjective goals. One of the biggest challenges is shifting Asian investors from trading to long term investing. And the challenge lies in moving them from emotional decision making to a more strategic decision making approach says Richard Cayne.
However the Centre for Applied Research study also showed that cash was the majority of their investor’s portfolio at 31%. And when asked to project their portfolio allocation for the next ten years cash was still the largest asset class while fixed income products represented the biggest growth segment. It doesn’t make sense that investors who want to significantly improve their wealth would still cling to cash and bonds over the long term particularly as interest rates are so low. Part of this behavior might be explained by distrust and lack of investment education as the survey showed that only one-third of private investors believed their investment service provider is acting in their best interest and they do not receive sufficient explanations from them.
Richard Cayne explains that different solutions and viewpoints about what constitutes private banking advice and service are required so that clients can understand the entire investment picture. A persistent, institutional focus on selling products to Asian clients rather than offering financial advice is causing them to turn away from traditional private banking. Many private banks have become or remain generic, acting as sales and product platforms which is not the true essence of what private banking is supposed to be.
High net worth Asian clients are clearly telling us they don’t want to be sold a steady stream of products that don’t help them. Today clients need to see that a bank is bringing the best of its organization to their business and really complimenting their portfolio.
The concept of working with a financial advisor and wealth adviser over multiple generations is still relatively new to Asian and mainland Chinese clients. Richard Cayne in Bangkok Thailand encourages relationships which emphasizes long term capital preservation and growth.
Private banking’s service model must find a way to redefine performance in more personal terms that address the perfection and needs of the investor. Relative performance based on peer groups or indices may serve the investment professionals, but the investor’s view of value is more subjective and complex. For example many investors cannot understand why a portfolio loss may not be a loss relative to its benchmark index which Richard Cayne explains as they see a loss being a loss and don’t care about what’s going on in the market. Part of the reason is that investors are conflicted and bewildered by a sense of fear and greed that drives risk taking, market tracking, downside protection, liability management and income generation.
Creating benchmarks that encompass a client’s unique needs and preferences may not yet be a reality, but perhaps the first step is for private banks to adopt an advisory rather than a sales role explains Richard Cayne.
Richard Meyer Cayne born in Montreal, Quebec Canada currently runs the Meyer Group of Companies www.meyerjapan.com. Prior to which he was residing in Tokyo Japan for over 15 years and is currently CEO of Asia Wealth Group Holdings Ltd a London, UK Stock Exchange listed Financial Holdings Company.
Richard Cayne has been involved in the wealth management space in Asia for over 18 years and has assisted many High Net worth Japanese families create innovative international tax and wealth management planning solutions. The public company of which he is CEO can be seen at www.asiawealthgroup.com or stock exchange link http://www.isdx.com/Asia Wealth Group .