Bringing a more holistic approach to investing
Integrating the individual product conversation within the broader framework of investment goals is a key priority for Marc Lansonneur of DBS Bank.
One of the main objectives this year for Marc Lansonneur, managing director and head of managed solutions and investment governance at DBS Bank, is to ensure his team continue to focus on taking a more holistic approach when talking to their clients about investing.
“My biggest priority this year is to continue to drive a step-by-step dialogue with our clients and relationship managers (RMs) so that we integrate the product conversation within the broader framework of investment and wealth management goals, and translate that into portfolio management,” he explains.
One already relatively large step in that direction is a move away from carrying out only product suitability; instead, he and his team are implementing a portfolio suitability approach.
That requires a scalable business model and a methodology for implementing the portfolio suitability assessment – both of which Lansonneur says the bank has.
Further, while integrated systems are a key component, he believes that changing the sales behaviour and processes is even more important.
“The one-off assessment of the product at the point of sale is paramount,” he says. “But we believe that when a banker sells a product to a client, he/she should also assess suitability based on what exists in the portfolio already.”
In addition, there should be regular assessments of what has been purchased and how these products have performed over time. “Understanding when it’s a good time to rebalance is as important as undertaking a new transaction,” adds Lansonneur.
All of this makes it more likely that RMs as well as clients will start to think about correlation, currency exposure, leverage and interest rate implications across the entire portfolio.
All about advice
Thinking about entire portfolios is an essential element of encouraging a more advisory-led approach. This also looks likely to get a boost from regulatory changes.
In the UK and across parts of Europe, for example, reforms have already separated product commission from investment advice, requiring clients to pay for advice.
In Asia, however, many clients still have a transaction-based mind-set. Getting them to embrace a more holistic approach to portfolio construction and asset allocation, therefore, remains a big challenge.
But while Lansonneur acknowledges an inevitable segment of wealthy Asian investors who are more self-directed, there is an even larger swathe of clients who are not actively looking for the next hot stock tip or trade idea.
“They want something consistent and the engagement cannot be based on a tactical call or transaction. It needs to relate to the longer-term investment goal,” he says. “There is high potential to push for advice with this large segment of clients.”
Indeed, the realisation that global regulatory change will usher in a new era of paying for advice in the coming years is one reason why private banks of all types in Asia have been pushing for an increase in take-up of services such as discretionary (DPM) and non-discretionary portfolio management mandates.
DBS has been trying out a non-discretionary advisory model that seems to be working quite well, according to Lansonneur.
“The client gives us a mandate and can also participate and have discussions with the portfolio manager,” he explains. “In other words, the portfolio management is delegated but the client still takes the investment decision. It is not completely discretionary because the client may also put in his own reverse inquiry trades.”
Changes for asset managers, too
Another of the new challenges facing product specialists at private banks is the ongoing consolidation across the two industries. Lansonneur believes it is the fall-out of a crowded product sector generally, driven by the higher costs, required to quickly adapt its business model.
“There needs to be less [focus on] upfront fees and the fee structure needs to be more performance driven,” he says.
Fund managers simply cannot continue to sell products they way they did before, notes Lansonneur.
“Products need to be built into modules that are part of larger financial solutions for clients,” he explains. “It’s also important for fund managers to have flagship products, instead of 10 average funds that cover all asset classes.”
The rise of passives has also rattled the cages of active asset managers. In recent years, for example, passives have gained strength both in terms of performance and inflows, at the expense of actively-managed funds.
One reason for the surge in popularity is the fact that instruments such as ETFs are much cheaper.
Yet ETFs cannot replace asset allocation and portfolios cannot be constructed simply using the cheapest available product.
As a result, Lansonneur believes that ETFs are, to a certain extent, being used for the wrong reason – just because they are cheap. Instead, he believes they should be chosen if they can add value to a portfolio.
Although ETFs can be better than poorly-performing active funds that don’t beat the benchmark, right now, investors who will not pay or don’t want to pay for advisory are the ones choosing ETFs portfolios.
“Those [investors] who want to assess their risk-reward profiles more rigorously, and are willing to pay a little more, will have access to a portfolio of managed funds (including ETFs) with proper asset allocation, rebalancing, and fund / ETF selection,” he adds.
After hours with Marc Lansonneur
• Has three children: two girls and one boy
• Coaches young children in rugby
• Plays for the Singapore Cricket Club
• Is a wine connoisseur and collector – with around 2,000 bottles in Europe, in a bonded warehouse
• Has two favourite wines: Clos des Fees and Chateauneuf du Pape
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