The importance of systemised rebalancing

Article in IFAOnline today here about how systemised rebalancing may not be treated as requiring discretionary authorities by advisers.  This, I think, provides some insight into regulatory thinking.  It  also raises quite a few questions, some of these being:

Q) Who defines the rules for sysemised rebalancing? And, what is acceptable?

Q) What happens if the client has made some specific instructions (or combinations of) that the systemised process cannot accomodate?

Q) Is there a set periodicity that can be mandated for rebalancing portfolios? What happens if something important occurs in the middle of that period?

Q)  Is a systemised process the key aspect here? Or, is the key aspect how the systemised process is used for clients?

Whilst systemisation is clearly a step forward in removing arbitary decision-making (and perhaps bias), the most important aspect in this discussion is about what is most suitable for the client in the rebalancing process. In other words, there is not a 'one size fits all' here.

I imagine the firms that accomodate client-centric and client-directed rebalancing will pass all tests (regulatory and client satisfaction)!

Centralised or Decentralised Investment Propositions

Much talk over here at the moment in the UK about centralised investment propositions. In short, this appears to be about operating a centralised process of investment management for a broad range of clients: these are most often segmented in a sensible manner allowing for risk tolerance and investment timeframe.

However, running contrary to this view, there is much talk also about the need to have client-specific investment propositions that are tailored to each client.  Indeed, there is an emerging school of thought that it may not be good practice to just move clients into a centralised investment proposition.

Mmmm. I sense an issue here.

Perhaps there is an answer in between that addresses both views:

• Centralise the common aspects of a centralised investment proposition such as investment research or model portfolios, centralise the technology servers to help advisers make decisions, centralise the data feeds to provide portfolio context; and
• De-centralise the use of the technology, and the client-specific directives into the implementation process so that whomever is dealing with the end investing client can ensure that the common philosophy and process are implemented according to the client's situation

Hey presto !

The devil is in the detail here, but with the right technologies and processes, why can't the industry have the best of what initially may appear to be conflicting directives?

The Importance of Emotion

I am reading this great book 'Firms of Endearment' (which you can buy on Amazon). I strongly suggest anyone who is supporting a consumer business should read this book. Whilst I am only a little way through so far, one of the points the book makes is about the importance of arousing emotions in dealing with consumers.

 'A brand or company that fails to arouse a consumer's emotion in positive ways will not have consumer's loyalty. And the same holds true for employees'....

So, what has this to do with retail investing and the wealth management industry? Quite a lot I think.

Firstly, that interaction with consumers and retaining loyalty (in order to retain and grow revenue streams) means more providing content in the context of each consumer to arouse emotions. Those propositions that are too blunt and just about the product, instead of about the client, are likely to suffer. To really be about the client, it means it has to be about their investment portfolio, their situation, and their performance.

Secondly, unless a firm is passionate about what it does in the context of the consumer, it may struggle to retain talent also. Firms moving from an absolute culture to a client culture are more likely to attract and retain the best, motivated people.