Shifting approaches: From asset allocation to the whole portfolio advisory
Cross-product advisory approach helps Bank of Singapore meet clients’ evolving needs
Lee Kim Siang
MARKETS are growing more complex and challenging, and the expectations of wealthy individuals and families are changing with them. They seek to not only grow their wealth, but also pass that wealth to the next generation. It is therefore increasingly important to them that their portfolios remain resilient amid volatile macroeconomic conditions.
A Wealth-X report estimates that US$18.3 trillion of collective wealth will be transferred to the next generation by 2030, with US$2.5 trillion coming from Asia.
Vivienne Chia, Bank of Singapore’s global head of the Investment Solutions Group, says: “As geopolitical tensions continue to shape the global economy, market conditions are expected to be more volatile going forward.
“In this environment, investors need to be nimble in accessing the whole spectrum of solutions available. We help clients evaluate these solutions to optimise risk and returns to achieve their wealth objectives.”
At Bank of Singapore, this means creating portfolios around the needs of clients; with sufficient diversification through the wide array of investment products and solutions that the private bank has available.
This holistic, cross-product approach is described as “whole portfolio advisory”, and aims to solve a variety of client objectives rather than focus on single-product solutioning.
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A combination of products in Bank of Singapore’s toolkit – including traditional asset classes, managed solutions, alternative investments, derivatives, foreign exchange and loans – may be used to meet objectives such as income generation, capital growth or improve risk-adjusted returns.
This gives the bank flexibility over the management of clients’ investments, says Chia.
“When we look across the entire range of solutions applicable to the portfolio for the client, we may uncover some areas of missed opportunities that clients can tap.
“For example, many clients do not have exposure to alternative investments today. As interest rates stay elevated and volatility ensues, the diversification benefits of the traditional 60/40 portfolio will come under challenge. Adding alternative solutions with lower correlations to traditional asset classes will help improve portfolio resilience,” Chia says.
She likens the whole portfolio advisory approach to a health screening, saying: “You don’t need to choose what to test for. There is a structured framework to help you identify areas that need more attention.”
In this way, clients can determine what investments are best suited for them based on factors such as objectives, risk appetite and geographical and currency preferences.
“When it comes to the actual portfolio asset allocation, it’s similar to helping the client choose his preferred diet plan following the outcome of his health screening,” she adds.
“Whole portfolio advisory is also more than just a conversation about asset allocation. It can be about recovering losses or reducing the cost of leverage through the use of derivatives. It can also be about the selection of the right solutions and services for the objective of legacy planning.”
A superior approach
While a whole portfolio advisory approach is applicable to all, high-net-worth and ultra-high-net-worth individuals would benefit most because of their complex needs.
This approach steers clients to set clear investment objectives, says Chia. “Having a structured framework and asking the right questions enables us to uncover the different pockets of a client’s needs and craft a plan that caters to their specific needs,” she adds.
The whole portfolio advisory approach also guides clients to stay clear of certain concentration risks.
“Some clients may get attached to certain ideas or products, maybe because it sounds interesting or perhaps due to a positive investment experience. They may not have given too much thought to how much risk they have accumulated,” Chia says.
“By guiding clients to have a clear view on their risk tolerance and utilising professional analytical tools, we help them identify the right strategic asset allocation that will help them meet their longer-term risk-return objectives and allocate the appropriate amount to specific asset classes and manage their risk exposures.”
Finally, the structured approach of whole portfolio advisory enables clients to consider a holistic set of products and services and evaluate which ones, in combination, will help them meet their objectives.
Says Chia: “A view can be expressed in different ways, depending on the risk-reward expectations of a client. Take for example, the artificial intelligence theme. This can be expressed in the form of single stock positions, in the form of a long-only equity mutual fund, in a structure which lowers the entry cost, or in the form of private markets investment. Importantly, we do not constrain clients or ourselves to one product or solution but consider a breadth of strategies and products to optimise risk-return.”
The whole portfolio advisory approach is equally applicable to family offices, she adds.
“A family office typically oversees familial wealth for different family members across generations. Reconciling different investment objectives and distribution of wealth requires that we go beyond single product solutioning and think creatively to blend a variety of products and services that meet differing needs.
“Family members at different life stages tend to have different needs. Those looking to grow their wealth may have a longer investment horizon and may be ready to take on more risks for higher returns, hence allocating more of their assets to private market investments.
“Those seeking to pass down their wealth to the next generation may focus on capital preservation instead or choose to delegate investment decisions to our discretionary portfolio managers,” Chia says.
Exercise in translation
Bank of Singapore’s Chief Investment Office comes up with the bank’s house view and suggests strategic and tactical asset allocations for different risk-reward profiles, goals and objectives.
These can be translated into clients’ portfolios in two ways. For clients who are fully aligned with the house views and do not wish to get involved in the day-to-day management of the portfolios, the bank offers discretionary mandates. Portfolio managers from Bank of Singapore’s discretionary portfolio management team have professional tools at their disposal to calibrate or customise portfolios for clients based on their risk appetites on an ongoing basis.
“Having a portfolio manager look after your portfolio ensures investment discipline and agility to respond to market events and opportunities,” says Chia.
For clients who prefer to be more hands-on with their portfolios, the bank’s relationship managers and advisory teams play an active role in updating the clients on market events.
Views and asset allocation models developed by the Chief Investment Office are used as a starting point for advisory discussions with clients, and then adjusted for specific risk-return preferences and liquidity needs.
Chia adds: “In some cases, clients have explicit preferences, and we need to adjust our recommendations accordingly. For example, some clients do not invest in certain geographies or sectors because they are already heavily exposed to those geographies and sectors through their businesses.
“Some clients have explicit environmental, social and governance preferences, and we adjust to their preferences accordingly.”
As these preferences and investment views change over time, Bank of Singapore continues to develop its investment solutions to stay ahead of the evolving needs of clients.
“We adopt an open-architecture approach in curating the best-in-class solutions from our panel of solution partners, who often co-create these innovative solutions exclusively with the bank,” says Chia.
“At the same time, we continue to look into new trends in the alternative investments space – expanding our suite of solutions from direct investments to specialist strategies and bringing our expertise in Asian solutions to our global clients.”
The wide breadth of investment opportunities at Bank of Singapore is what makes its whole portfolio advisory compelling, and clients are empowered to make changes when their needs change.
They are generally encouraged to do “health checks” on their portfolios annually, says Chia. “This will actually help them to adjust to changing market environments and personal needs.”
The successful execution of the whole portfolio advisory approach requires strong cross-product knowledge to blend products effectively through the use of professional analytical tools.
“At Bank of Singapore, we have committed resources to deepen cross-product solutioning knowledge of relationship managers, product specialists and investment specialists, going beyond the industry norm,” says Chia.
“We also invest in professional analytical tools, which will help us conduct various scenario analyses and stress testing on portfolios. This is to ensure we can more effectively utilise the full investment toolkit of the bank to help our clients navigate lifecycles and an evolving investment landscape.”
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