Fiduciaries of the Future: Three ways to boost investment effectiveness

The exciting growth of the fiduciary and global offshore wealth management industry, runs in parallel with challenging and large-scale change as market participants strive to outperform in the face of stiff competition and tough conditions.

In Jersey, for example, it is estimated that local firms currently administer 30,000 trusts with assets of £600+ billion¹, as well as bank deposits totalling in excess of £127 billion. It’s an attractive environment, but at the same time, cost pressures and complexity are rising.

From post-lockdown inflation to ever-evolving regulatory expectations, a wide-ranging combination of factors are squeezing fiduciary margins to the extent that it is often no longer cost-effective to service clients with less than £5million in assets.

Given the abundance of advisor choice that clients of that stature typically have, there is added pressure on fiduciaries to stand out from the crowd and differentiate themselves. With that in mind, here are three considerations which may help to stave off the competition and enable fiduciaries to thrive in today’s increasingly competitive market.

1. Address changing investment environments and expectations

As fiduciaries are often dealing with lengthy time horizons when working with UHNW clients, they must balance their overarching duty of preserving wealth (in real terms), with the specific and varied financial needs and perspectives of individual family members.

According to Henk Potts, Director of Global Research and Investments for Barclays Private Bank, periods of uncertainty and volatility place a greater onus on fiduciaries being responsive to client queries.

As he explains, “With the right technology, underpinned with the latest analysis and teams of specialists, fiduciaries can help clients form a view on all manner of difficult questions. Wealthy individuals typically want insights on the prospects for growth in the global economy, and they like knowing how trends such as inflation might impact their wealth preservation strategies. Despite the bumps, we’re witnessing the strongest economic recovery from any recession for 80 years, and it’s a crucial time to communicate openly with clients.”

Additionally, a shift in investor priorities has increased the scrutiny, and the expectations, of investment strategies. The booming, global appetite for sustainable and impact investing is a good example of how investors want to use their wealth differently. As mentioned in the latest ‘Investing for Global Impact’ report, to which Barclays Private Bank is a key contributor, Bloomberg estimates that ESG assets may hit USD $53 trillion by 2025, representing a third of global assets under management².

More than ever, UHNW clients want to connect with asset class specialists and portfolio managers, to ensure their investments are used to strike their preferred balance between profit and purpose.

Fiduciaries can often satisfy those needs and compete more effectively by working with investment partners who provide a modern and adaptable level of service. When selecting an investor advisor, we believe it’s important to take the time to understand the difference between suitability and advice. In essence, suitability is a baseline regulatory process used by the industry, but for this to be effective an investment advisor needs breadth and depth.

Meanwhile, advising in a narrow band leads to bias, uniform solutions, overlapping or conflicting styles, and potentially poor outcomes.

So what should a fiduciary look for in an investment partner? A strong, risk-adjusted investing track record is of course attractive, but that’s not all. Alistair Randall, Portfolio Manager, Head of Multi-Asset Class at Barclays Private Bank, suggests “the right partner must have a stable and ‘free-thinking’ investment team. That’s important primarily because it can lead to better decisions through stimulated debate with expert colleagues.” Other factors include ensuring the partner’s time horizons align with those of the client, and that all holdings and interests are transparent and understood.

2. Improving operational efficiencies and effectiveness of outcomes

The need to operate compliantly can be costly and time-consuming for trustees, especially when many UHNW clients require non-standard solutions. Given the size of their wealth under management needs, UHNWs might also expect a higher-level of expertise when it comes to access to finance and opportunities, and monitoring of markets: a resource-intensive task, involving teams with expertise across asset classes, geographies, sectors and service providers.

Fiduciaries often believe that such a comprehensive service requires the appointment of several providers. However, that can complicate the effective management of the clients’ positions, increase costs and cause performance drag.

A solution to this is to appoint a whole-of-market investment partner to manage and advise across the broadest possible investment universe, using multiple solution providers (including banking and credit). Working with one partner to consolidate, means fiduciaries can control governance and costs, reduce bias, and protect margins more effectively. Concentration risk is often mooted as an impediment to this approach, but using diversification of assets and underlying providers via the investment partner mitigates this.. 

3. Actively seeking world-class diversity of thought

UHNWs are used to receiving bespoke services, especially in matters of finance and investment. Therefore, fiduciaries with access to diverse perspectives and expertise across different industry sectors and jurisdictions will increase their appeal and their chance of being able to meet growing client expectations. Where they can offer access to a range of investment options — covering equities, private markets (for sophisticated investors only), credit, macro, funds, capital markets, and structured products — preferences can be met, market opportunities revealed, risk more effectively managed and portfolios enjoy optimum diversification and de-correlation.

The breadth of thinking that exists in a large team of specialists can help to avoid geographical bias, product bias and style bias. A ‘free-thinking’ environment challenges opinions and preconceptions, creates fresh perspectives and helps teams stay focused during periods of change.

For Simon Smith, Head of Overseas Investment and Brokerage, it’s clear that a one-size-fits-all mentality isn’t enough. “For fiduciaries, it’s common that clients would want us to do the investing on their behalf, and so they’ll typically choose a discretionary portfolio service,” he says. “There are other clients, however, who want to have a more hands-on role, to see ideas and get access to opportunities across both public and private markets."

"In those cases, they’ll opt for an advisory portfolio service. What is critical however, is that we think about the whole client. We need to clarify what their preferences are, how their past experiences have been (good and bad), as well as the views that we need to address before we can invest successfully. Fiduciaries that partner with investment providers who can offer choice and view the client holistically, are adding another string to their bow.”

Choosing the right partner – a competitive advantage

As the global economy finds its feet in the aftermath of the pandemic fallout, fiduciaries able to adapt and stay agile to changing trends, now have a real opportunity to better serve their UHNW clients and move up the value curve. With the right investment partner, trustees can access a comprehensive range of services and in the process, gain commercial advantage.

If that prospect appeals, the content series which we’re publishing on the three ways fiduciaries can boost competitiveness should be essential reading, and we’ll be exploring each option in more detail. 

Related articles