There are myriad approaches for clients to manage their banker relationship optimally, and the partnership certainly needs to be managed
How do you approach the near-infinite universe of investments? In its true form managing money is a process of information collection and some analysis, all the while dealing with an intermediary firm/bank for access to markets. Far from covering the usual subjects that include markets headlines about rising (or falling) equity indices, economic events or insightful predictions, we will explore a broad spectrum of investor relationships. Investors have beliefs about their money and form biases over time about growing their wealth. Our families, friends, work colleagues, the media and even financial institutions, among others, colour the human perception of what means to classify money. Should we hold it in cash under a mattress, the way some used to many years ago, or actively — and systematically — invest in a dispassionate way? Those who grew up in the Middle East or the Indian Subcontinent well remember that a family’s first foray into investment was accidental; that is, holding gold used to be all the rage. New-born children would receive gold coins and mothers would accumulate this “wealth” while visiting the jewelry shop on occasion for a “valuation” to see what price could be achieved from the coins’ sale. This exercise served three purposes: store of value for one’s wealth; growth of savings as the price of gold increased; and, cashflow management whenever some of the gold was sold to supplement a family’s cash shortfall. Investment markets have come a long way since then.
Client-banker relationship
The best relationships in life, whether in business or on a personal level, are broadly built on a foundation of mutual understanding at their inception. That is, partners with similar goals, wishes, or even an alike ability to communicate — the better to understand each other — are resultantly more satisfied and productive. The client-banker relationship is no exception, albeit recent history has shown there still to be a gap in knowledge between the two parties in the relationship. This has led invariably to some disorientation for fund investors who either have not clearly understood their banker, or felt the data they possessed was incomplete before taking the investment plunge. At the end of the day, there are myriad approaches for clients to manage their banker relationship optimally, and the partnership certainly needs to be managed. While hardworking fund-provider professionals can and do show dedication in offering product solutions to their clientele, they long for investors who ask informed questions. At the outset, satisfied fund investors start with these five questions, directed towards their relationship manager:
1) Why are you my banker?
One way of meeting a banker who sells funds is by walking into any bank branch — the fairly random approach. In many cases, institutions assign relationship managers to clients. For example, for linguistic or cultural ease of function senior management could automatically place an Arabic speaking relationship manager with an Arab investor, who may nevertheless be fluent in English. From the beginning of the partnership, clients may — for any reason — make an honest assessment if this one-on-one association can stand the test of time. Matters such as such as personality clashes, or even late replies to emails, can arise. The customer can alter the dynamic via verbal or written request that a specific staffer (through a referral) handle the account. Since happy customers are profitable ones, your institution will likely accommodate the request.
2) Where is the rest of the information?
Fund salespeople are required to function within the framework of various regulatory rules in imparting customers with investment fund information. Often we have become accustomed to receiving a brochure and one-page factsheet on a fund with, among other data, with year-to-date as well as time periods spanning months or years. If the product is newer perhaps only the one-year return is available, or the fund manager’s long-term track record on similar product they manage is at hand. Investors in the know will ask for customised return periods, as well as total returns during or since a recessionary economic period (or even the 2007-8 Global Financial Crisis). This supplemental information could offer greater insight not just in how the product behaves in a different economic climate but also, at a minimum, fill timeline gaps when evaluating markets volatility.
3) How does the investment compare to your competitors’ offerings?
The savviest investors know the answer to this query even before posing the question. It is no secret that a client could hold accounts with various institutions and would likely have been offered an identical product — say an Omani equity fund — but operated by a different fund manager. In this case, the customer can ask the relationship manager to evaluate the competition and provide a compare-contrast assessment of the opportunity. Investors need to ask themselves whether they are seeking just superior fund managers with sterling historical track records, or a combination of award-winners, lower fees, greater liquidity or a concentrated fund (with a fewer number of securities held). When funds have identical strategies, having a sense of one’s investment comfort zone is paramount.
4) Can you explain your fees?
The general rule is that there are three types of fees: sales (can be upfront upon investing or when exiting), annual management and performance fees. The client, in practical terms, should be clear as to when the fees are applied. Total return data on fund factsheets are provided net of fees as is typical in the industry. A common error customers commit is believing, much like shopping in the local Souq, that lower fees mean they are getting a better deal. Nothing could be further from the truth in actively managed funds with a portfolio manager who enjoys leeway in allocating securities in the investment vehicle. Both the breadth and depth of a fund provider’s analyst team, fund manager expertise derived from years of investments experience are critical factors in relying on a money manager.
5) Where is your investment advisor?
Numerous banks and investment management firms have investment advisors (IAs) who act primarily as co-pilots to the relationship manager handling an account. These professionals exist to support the salesperson with product, markets and economic information for the client’s benefit. Advisors can serve a meaningful purpose by supplying more data or product particulars that clients both appreciate and integrate into making money-management decisions. If the banker fails to either introduce the IA assigned to the account, or consistently excludes them from meetings over a protracted period, clients have recourse. The investor can either insist that the IA attend meetings or include the Advisor in the investment discussion. One simple way of doing the latter, without sidelining the relationship manager, is for the client to send his banker an investment fund factsheet received from another institution while asking for detailed review of the opportunity. Relationship managers, instead of plunging head-first into an analytical undertaking, have the inclination to hand this research exercise to an Advisor. Upon receiving the written analysis the client will invariably have detailed questions — for the investment advisor. In the final analysis, would you ever board an airplane without a co-pilot?
While the points raised above are by no means exhaustive, client satisfaction hinges on an appreciation for foundational investment wisdom which is garnered through deliberate knowledge acquisition and experience. A cornerstone of learning includes taking personal initiative by reading in tandem with peer discussions of the finer points of investments. Our effective management of personal wealth will continually be tested by the peaks and troughs of different market and economic cycles over the years.
