Retail investors should adopt the portfolio optimisation techniques utilised by major institutional investors, according to a new study released this week by a European research house, EDHEC — Risk Institute.
The study, covering asset-liability management (ALM) in private wealth management, argued that most private bankers actually promote an ALM approach to wealth management.
It notes that while private clients are routinely asked all kinds of questions about their current situations, goals, preferences and constraints, the resulting service and product offering most often boil down to a rather basic classification in terms of risk profiles with no link to the recommendation.
The study suggested that by using ALM, advisers could ensure private wealth managers are able to offer their clients investment programs and asset allocation advice that improves the probability of meeting their individual objectives.
It said taking an ALM approach to private wealth management generated two main benefits, the first of which was better asset class selection, the second being better risk definition.
