As an independent Discretionary Fund Manager (DFM), MitonOptimal has been working with and alongside trustees for the best part of two decades. It is evident to us that the old ways of doing business are changing, globally, and without exception. In fact, a growing number of traditional institutions no longer accept clients from jurisdictions perceived to be higher risk, and increasingly refuse to open bank accounts for any form of structure.
We have seen that pace of change increase significantly over the past few years, with FATCA, CRS, BEPS, GDPR, MIFID II and Registration of Beneficial Ownership to name just a few, overwhelming trustees with administrative workloads and regulatory requirements. In this atmosphere, it is easy for the management of client portfolios to be inadvertently nudged down a trustee’s priorities list in many instances.
Past decisions and inertia may have an adverse impact on portfolios
For fiduciary professionals, ensuring that assets and strategies stay aligned with a trust’s investment policy statement should be a straightforward process. However, a Settlor and/or Beneficiaries personal preferences, a good sales pitch from a product provider, or the search for yield can lead to decisions that potentially shift the dynamics of a client portfolio away from the original investment policy statement.
From our own experience, when conducting initial portfolio reviews for trustees (a major part of our DFM service offering), we are seeing an increasing number of portfolios that either; no longer match the original investment mandate or have had the same asset allocation since inception, sometimes going back decades. There can be a number of possible reasons for this, especially when a trustee inherits a client relationship or large book of clients, with ‘orphan client’ becoming increasingly challenging for trustees to manage.
However, these substantial challenges also offer an opportunity to better manage the investment aspect of a trust, through using a better, faster and smarter portfolio management solution, in the form of DFM partnerships.
Working with a DFM partner enables the trustee to conduct an unbiased and enhanced forensic portfolio analysis, allowing the trustee to re-establish a suitable risk profile and asset allocation strategy. That DFM partner will also take on the day-to-day responsibility for the investment decision-making process, enabling trustees to further de-risk their businesses. The trustee remains the primary relationship manager, whilst benefiting from the full range of research and analysis tools, skills and investment experience of the DFM.
Your DFM partner must understand client circumstances and the Trustee relationship
Whether your trust clients are 1st generation entrepreneurs or 4th generation family members, your DFM partner must have experience in tailoring portfolio solutions to suit a broad range of client-specific circumstances and investment objectives.
They must understand that wealth preservation is key to securing the legacy of a successful entrepreneur or wealthy family and that income generation and careful stewardship of settled capital enables a trustee to maintain the quality of life to which beneficiaries have become accustomed.
For single or larger multi-family offices they should provide an insourced investment management committee or chief investment officer functions, allowing your clients to benefit from their investment analytics and experience without having to appoint an external manager on a discretionary basis fully.
As your DFM partner, their primary focus should be on asset allocation and portfolio management.
There has also been a paradigm shift in portfolio management. In particular, the evolution of investment platforms as a viable alternative to the more traditional approaches, now enabling trustees to access investment solutions at the click of a button. Your DFM partner, should be platform agnostic and make their solutions available to trustees via various custodians.
Over the last few years, there has been a ground swell of independent trust businesses and private client practitioners seeking to engage an investment manager who understands both their business needs and their client servicing requirements. Most are simply trying to do things better/smarter, whilst always looking to avoid that ticking time bomb.
Warning! Are your client portfolios a ticking time bomb?
