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How to develop personalized investment programs in today's competitive marketplace

Today's high net worth investors are more sophisticated than ever before. They keep up on industry trends and they want access to the best investment options available. To compete in this marketplace, banks are offering their clients a wide array of investment choices, including non- branded products and external money managers, no longer limited to proprietary solutions.

In line with this trend toward open architecture, "manager of manager programs" are on the rise across the industry. With a manager of manager program, a bank selects and combines external managers with complementary investment styles to provide optimal risk/return objectives specified by their clients. Through these programs, an investor gets exposure to top tier external money managers previously available only to institutional clients.

By offering optimal investment strategies, not only in-house solutions, manager of manager programs provide clients a measure of objectivity. Dedicated professionals armed with extensive research and evaluation tools engage in an ongoing monitoring process of the managers to ensure there is continued compliance with client guidelines, and make termination decisions when necessary. Program sponsors also engage in due diligence research when selecting the managers that best fit with their client's needs.

Experts agree that banks need to adopt open architecture to survive in the industry, and there is evidence to support that theory. Manager of manager programs have grown by 17 percent a year over the last five years. However, the rapidly growing number of investment programs can be overwhelming to investors. Advisers need to stay clued into what's important to their clients, not only the latest trends.

It takes a comprehensive, consultative and collaborative approach -- the three C's of "managed architecture." Advisers should address their clients' total wealth management needs, offer sound, objective advice and work closely with them to create highly personalized investment programs.

The three C's of managed architecture

Comprehensive: As clients allocate an increased share of their portfolios to outside managers, advisers will need to assure them that they are accountable for the management of their money -- whether it is inside or outside of the bank. They should look at their clients' full financial picture to understand what's best for them among proprietary solutions, third-party manager products or a combination of both. The determination needs to come from an in-depth analysis of many factors including asset allocation, client preference, cost considerations and the strength of the firm's solutions relative to the capabilities of external managers.


Although this wave of investment programs is hardly traditional, investors still want banking relationships that are -- they want to develop partnerships with advisers who they feel they can trust. Therefore, advisers need to analyze their clients' short- and long-term goals in light of their current holdings, and offer the best combination of managers to meet their needs. They also need to explain to clients how using the right combination of managers limits their overall investment risk, providing optimal diversification strategies with low-correlating management styles.


While a portion of their portfolios may be managed externally -- investors still want to feel connected to their wealth and they want to have a say in the decision making process. It is important to allow clients to voice their concerns in order to determine their risk tolerance. Also, understanding the goals and values of their family can help build their ideal financial picture not only for now, but for future generations to come.

Recker is senior vice president and senior portfolio manager for Northern Trust in San Diego. Northern Trust has offered clients access to external money managers since 1979.

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