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Bearish Brokers Have Skinny Children

Written By: Tiang Chuan on October 1, 2011 No Comment

The quote “Bearish brokers have skinny children” stuck after attending a wealth management forum. This simple phase speak volumes about the issues facing not just the wealth management industry, but the whole investment community. The issues discussed at the forum were starting to sound like a broken record. No clear solutions was offered.

There have been no change to the challenges faced by the wealth management community. The same old issues of being product-focused, bottom-line driven culture, short time horizon, high cost, inappropriate remuneration structure, sales targets etc are still there. There have been no asset allocation and risk have not been integrated enough into investment decisions which leads to concentration risks.

The Asian short term trading mentality was highlight many times. Private banks have commonly been used as a brokerage to execute trades. Many RMs are also demanding short-term products, perhaps to satisfy demand. This means that it is the hot themes, which are already expensive, that are being sold.

Compliance must start from the adviser/RM and the client, not the institution. This conflicts with management’s tendency to reward producers, not compliant advisers. However, those that are non-compliant risks losing not only their jobs, but their whole careers which have been painstakingly built up over the years.

Asian clients do not want to pay fees. Even when they are open to the idea, they want to negotiate to bring down the fees. Thus, there is little incentive to offer fees-based models. However, no one mentioned about educating clients.

The industry may also see withdrawals, depending on how the current situation pans out, as huge costs have been incurred to start up or build up the business. The views on the amount of business are too optimistic.

In summary, the same old issues are still there, there are no solutions and clients seem happy to continue using the same transactional models.

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