How to Differentiate Your Investment Process and Enhance Client Acquisition?

Finvent Consulting Services Group | 10th July 2023

Seeking Differentiation in the Investment Process

The target audience of professional investment advisors, whether they manage their own strategies, select 3rd party funds, or manage discretionary and advisory portfolio mandates, are private and institutional clients of varying asset sizes, trading sophistication and risk/return profiles.

Managers continuously seek the best ways of improving their asset acquisition process, aiming to convince prospective clients of their differentiating offering and expertise, and convey that their clients’ newly created or multi-generation wealth will be safeguarded and increase through business cycles and market fluctuations.

Considering that the defining characteristics of future change are the existence of wild volatility and the impossibility of predicting it, the mission of those involved in asset management is not to predict the future but to manage positions of high conviction within a disciplined risk framework.

It is the frequent assessment of the portfolios’ vulnerability to future price fluctuations, and the simulation of their behaviour and loss-tolerance to stock price volatility increases, what should give clients the comfort to engage into long term relationships with advisors.
History shows that it is not an advisor’s predictive or market-timing ability the skill that will protect one’s wealth from the next major market downturn or financial crisis; it is the application of a systematic investment process via the use of smart risk management software engines, which can guide the mitigation of portfolio risks via educated risk-adjusted considerations.

Portfolio Risk Perceptions

A number of market participants seem to not apply comprehensive portfolio risk attribution, despite the fact that the widely-used performance-only-based views do not provide investors with deep understanding of their wealth’s vulnerability to volatility fluctuations.

It is also evident that risk management is often perceived as a ‘nice-to-have’ quantitative feature, and not a necessity for the portfolio management cycle.
The ability to implement a multi-faceted portfolio risk analysis will enhance a client’s comfort to join an investment advisory scheme and comprehend its alpha-generating skills. It will also reduce the managers’ anxiety of having a ‘commoditised’ offering or of seeking the next trendy product that may put place them in the buzz zone.
Admittedly, no single digital investment tool-box will solely raise assets or retain clients; its systematic use, however, may earn a satisfied and well-informed clientele for the tougher times to come.

The aim of innovative investment technology is to enable clients to be consistently better informed about the sources of their wealth risks and opportunities, and thus less surprised should adverse market conditions prove unfavourable for their asset allocation strategy. Non-opportunistic portfolio management should be based on the management of market risks, and not of returns.

Technology should not confine itself to portfolio performance reporting in absolute terms but in risk-adjusted ones too, so that clients can see the path that their manager chose to reach an agreed performance target. This way, one could readily decide with a data-driven confidence whether the portfolio risks should be adjusted to the prevailing market conditions.

FINVENT Software Solutions is a producer and distributor of financial software applications and custom engineering services for the investment management sector. The firm serves financial institutions in European and African countries, including asset managers, family offices, investment banks, pension funds and hedge funds. Its award-winning KlarityRisk platform specializes in multi-dimensional investment risk analytics, stress-testing simulation scenarios, risk limits management, and fixed income performance attribution reporting.