Fulfilling real client motivations is key to investment success in changing fiduciary market

2020 has undoubtedly been one to remember. For fiduciary clients 2021 will bring it’s own challenges. Many are expecting to grapple with low and negative interest rates, market volatility, the outcomes of Brexit and ongoing COVID pandemic, environmental, social and governance. High asset valuations and potentially damaging client/ manager behavioural bias may also create challenges.

In a volatile and fast-changing world, offshore investment management must evolve.

Simon Smith, Head of Offshore Investments for Barclays Channel Islands and Isle of Man, explains how today’s fiduciaries need to go beyond a narrow traditional focus of managing assets towards a broad and dynamic response that actually aligns to clients’ underlying motivations.

For a long time, offshore investment management has been about simple discretionary portfolio and fund services. Security picking and blending of asset classes, that subsequently delivered returns (or not) for the client, with the fiduciary focusing on fees and manager performance vs peers. The approach has always been firmly focused on the short-term ‘how’, rather than the long-term ‘why’. But, an evolution is taking place that asks questions about the underlying motivations for clients and what it is they really care about and are trying to achieve, before deciding on the best solution to get them there.

For fiduciaries, this is about establishing high conviction around what the client is trying to do, using skilled advisors that can help them build the relationship to deliver long-term outcomes.  Its an approach that benefits all.

Finding and addressing your client’s motivations

By way of example, one of our trust clients recently contacted the team to get advice on buying a single line bank stock that the settlor had an interest in. The trustee was concerned about the risk of a large single investment and the doubling down of risk - the trust also held all funds with the bank in question - and therefore asked for other stocks we would recommend to diversify. The team fulfilled the immediate ask, but the more important question asked was: what does the client actually want to achieve?

After a joint consultation it turned out that the trust was designed to leave an inheritance for the settlor’s children, along with a running income. Once we’d drilled down to understand this motivation - and underlying bias and preferences - we were able to talk about risk profile, income requirements and the wishes of the beneficiaries.

This led to a restructuring of the portfolio to build three different cells of well-diversified higher-risk assets for the ultimate beneficiaries  - one with a sustainable slant, one with a private markets slant -  and a structured solution with income and dividends for the shorter term needs.

Advising in a fast-moving world

Responsive, active management is critical in today’s volatile markets. Fiduciaries and their clients are facing the enormous uncertainty of the economic fallout of the global pandemic, whilst also managing Brexit outcomes and dealing with ongoing low interest rates - and persistent inflation!

There are multiple, shifting, complex consequences to each of these headwinds. The end of the Brexit transitionary period affects both imports and exports, underlying economies, and has huge consequences for asset managers in terms of regulation and European market access.

The low interest rate environment is clearly here to stay, as central banks dealing with recessionary pressures are in no hurry to raise rates. But there are signs that they will tolerate a period of carefully managed rising inflation in a difficult balancing act. All of this is taking place against the backdrop of the global pandemic, its associated recessionary pressures and hopes for recoveries.

Depth of expertise and a global network

For fiduciaries to build trust with clients in this environment, with the correct support they need to be able to talk about assets under their stewardship (and those not yet so!). This may be from performance reviews, including investment philosophy, drawdown analysis and valuations, to practical elements such as where and why people lose money when investing and how to address this (behavioural finance).

With their advisor, they need to be able to‘go around the wheel’ [see infographic] to consider - and discount as appropriate - each type of available investment. This shouldn’t be based on what the product is, rather what it has the potential to do and the objective it can solve.

For example, passive solutions such as exchange-traded funds for the cost conscious, to sector focussed assets such as real estate, through to de-correlated alternatives and broader based opportunities in private markets, hedging or taking positions in capital markets, income or return based fixed income and structured products, thematic single-line assets and more. Each solution delivers idiosyncratic returns that can be matched to client needs.

The aim here is not to ‘over-engineer’. In fact, the solution is often a blended delegated one. Rather it’s to use a process that builds trust, confidence, and credibility in a fiduciary provider. To do this alone is impossible however, and that’s where the right investment partner becomes invaluable.

The right partner

Barclays investment advisors access a full universe of products and services for high and ultra-high net-worth, family office and corporate clients. We recognise that the process of investing begins with understanding the client and their needs, before defining a strategy, managing risk on an ongoing basis and re-evaluating objects and investment strategies on-going.

In the past, investment management has been a somewhat opaque process to clients. Many saw investment advice as selling products, often with a geographical or sectoral bias for the advisor. The right investment partner today is very different. There’s a world of quality advice that exists to move clients to their goals, understand and manage their risk appetite and help them navigate the fast-changing markets of today.

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