Independent advice sorely needed in Asia, says family office chief

22-Jul-2016

By Yash Mishra, managing director, head of private clients, Taurus Family Office

In the years since the 2008 crisis, financial markets have experienced an extended bull run. Expansion levels have been elevated, fuelled by quantitative easing and the loose monetary policies of central banks.

Now, market risks abound as global growth begins to slow and changing regulations impact the management of wealth.

More than ever before, there is a need for independent advice to guide clients through the changing financial landscape.

Meanwhile, the inherent conflict of interest in the wealth management industry also drives the need for independent advice.

Within the wealth management industry ‘advice’ typically centres on product sales, and there is often pressure to promote the highest-margin product.

Examples of this include the leveraged high yield bond trade in the years since the global financial crisis, and opaque structured products with high margins.

Turning a new leaf

By contrast, the investment advisory model’s product is unbiased, objective advice: this is a model that places the client at the very centre.

In a recessionary environment where asset prices can recalibrate significantly and erode the gains of past years, the agility of independent advice – particularly within a nimbler setup than the large institutions – can exploit market opportunities and protect against downside.

The regulatory landscape is constantly moving towards greater compliance and transparency. It is becoming increasingly common for clients to have assets that span multiple jurisdictions, and independent advice that can respond to the regulatory burden is essential.

The new world facing the ultra-wealthy will require a thorough review of existing investment structures and new ways of managing wealth in this more transparent environment.

Passing on wealth

Changing demographics in Asia are also leading clients to turn to independent advice. As high-net-worth individuals in Asia near retirement, the preservation and transfer of wealth to the next generation is becoming of greater concern for clients.

Risk management should be an essential part of the investment discussion.

With most high-net-worth families seeing their wealth diminished by the third generation, educating clients about broader market risks and distilling it in context of their portfolio remains essential.

Clients can often be complacent about these risks. However, within an independent advisory setup, objective advice is easier to provide as there are no ‘house views’ to adhere to. The conversations you can have with clients become more candid and can deal more directly with risk management.

We are also seeing an increasing trend of ultra-high net-worth families in Asia considering the creation of their own single family office, focused solely on their interests.

However, many families understand that building up a team with adequate experience across asset classes can take considerable time.

In that light, families are reaching out to established multi-family offices with significant Asian experience to bridge the gap until their own family offices can be built.

This allows clients to leverage the strength of a more experienced team to support managing multi-generational wealth, while taking advantage of the additional expertise in important areas such as philanthropy and family governance.

In today’s market, objective, unbiased advice backed with years of market experience is key to the protection of multigenerational wealth.

That is why independent advisory firms are becoming ever more relevant and clients are increasingly recognising their value.

This article was originally published in the June issue of Citywire Asia magazine.

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