Aligning client needs with investment products
The client's risk profile - as determined by a financial planner - should determine how their money is managed, according to Fitzpatricks Private Wealth chief investment officer Alex Hone.
Hone is also the director of Atrium Investment Management. About 80 per cent of the money he manages at Atrium is on behalf of high-net-wealth Fitzpatricks clients with managed discretionary accounts.
"The way money is managed in the investment industry typically has very little regard for a client's investment needs," said Hone.
The industry typically begins with a returns-based approach rather than a risk-based approach, he said.
"The mandate we have for the client [at Atrium] is the 'risk budget' - how much risk can we take for our client?" he said.
Hone listed the shortcomings of the investment industry, and the lengths Atrium/Fitzpatricks takes to avoid them.
Firstly, Hone doesn't want to be forced to make investment decisions he doesn't want to make.
"Strategic asset allocation forces investment professionals to make allocations in asset classes that aren't necessarily attractive. We saw that prior to the global financial crisis with listed property trusts," Hone said.
Secondly, most of the 'diversified' portfolios in the industry are highly correlated to equities - and that correlation increases in times of stress because equities have an "asymmetric risk profile", he said.
Capital preservation is also a priority for Atrium, Hone said.
"If someone has a portfolio with a 0.8 or 0.9 correlation with the equity market, capital preservation is not possible. No matter how good you are, if the equity market falls 50 per cent you have absolutely no chance or preserving your capital," he said.
As a result, Hone is increasing his exposure to alternative assets - such as soft commodities, market neutral funds, certain currencies and global macro funds - to reduce equities risk for investors.
But for Hone to invest in an alternative asset it has to make "economic sense".
"I once spoke to a CIO of a super fund and he told me that they'd just introduced 27 new asset classes. I can't even think of 27 asset classes. The mind boggles. They were doing it purely because they had a sense of a need for diversification," he said.
AUTHOR
Staff Writer
Recommended for you
With HNW investors representing the largest market for alternative assets, Praemium and CoreData research underscores why this presents a compelling opportunity for advisers.
Having completed the successful integration of Diverger, Count has upgraded its forecast for expected synergy benefits achieved by the acquisition by a third.
Australia’s largest licensee has seen the biggest number of adviser losses over the past week, while the expected wave of new entrants has boosted overall adviser numbers.
Iress has increased its forecast adjusted EBITDA by $5 million for the 2023/24 financial year in light of the sale of its platform business to Praemium and hinted at a return to dividend payments.
