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This European survey conducted by EDHEC-Risk Institute as part of the “Private ALM” research chair in partnership with Ortec Finance draws on responses from 159 private wealth managers (PWMs), whose clients include the mass affluent (financial assets of less than $1 million) as well as so-called ultra-high-net-worth individuals, or UHNWIs (financial assets of more than $30 million). The 159 respondents are mainly senior European investment professionals working in private banks, asset management firms, and family offices; more than half represent organisations managing more than €1 billion of clients’ money.
The key findings of the survey can be summarised along three lines:- PWMs see the relationships with their clients as the principle source of value they add. But they fail to exploit this close relationship to customise the services they offer their clients portfolios are designed for clients, market factors are taken into account more frequently than are the individual characteristics of the clients. Wealth managers often assess their clients’ level of risk aversion, but other individual risk factors—longevity risk, individual income risk, and individual spending objectives—are accorded much less importance.
- PWMs also generally fail to provide state-of-the art means of horizon-dependent asset allocation. Current practice is inconsistent in the sense that horizon effects are recognised as important but the factors that generate horizon effects—stochastic outside income and time-varying equity risk premia—are notPWMs rarely work with explicit models of mean reversion of the equity risk premium. 77% of respondents do not model long-term equity returns at all.
- Finally, PWMs see the potential of taking into account client-specific spending objectives, but only a small minority actually attempts to realise this potential. The methods PWMs are most familiar with are traditional investment analysis, which focuses on direct alpha generation (fundamental and macroeconomic analysis), or fund-selection concepts, which focus on accessing alpha indirectly (performance analysis and due diligence). These concepts, by aiming mainly at alpha, are unrelated to client-specific spending objectives, and PWMs acknowledge that they are of little value in achieving these objectives. Together, PWMs who are unfamiliar with ALM and those who are familiar with it but do not use it make up a majority of our respondents. The lack of adoption of ALM has more to do with unfamiliarity with the concept and with the perceived difficulty of using it than with sceptical views of its usefulness.
EDHEC-Risk Publication European Private Wealth Management Survey
This study was produced as part of the “Private ALM” research chair in partnership with Ortec Finance
