What to expect when working with an investment advisor

Almost every week, I hear a client, a friend, or a friend of a friend, who has been given a ‘hot tip’ from someone who believes they know what the next big runaway stock will be.

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This can even occur on television or print-media as brokers are often called in to pitch a single idea or a short-term investment theme to their audience.

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An exciting story can suck in an otherwise intelligent person into buying something that they shouldn’t or buying too much of something and then risking their wealth in the process.

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Unsurprisingly for many people, the single-idea stockbroker is exactly what comes to mind when they think of a wealth advisor.

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Whenever I meet someone new at an event, or upon an introduction from an existing client, it can be difficult to explain what an investment adviser or wealth manager does (in short) because it involves clearing up old-industry preconceptions.

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Many people picture Jordan Belfort in The Wolf of Wall Street movie, where so-called ‘investment managers’ are crooked salesmen calling people to buy or sell a particular stock that they have absolutely no conviction in, simply because of the large financial incentive (commission) to do so.

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Our industry does have origins in sales; originally with insurers paying brokers to sell their policies.

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Then many of the same banks evolved to incentivise the same thing with various investment products, or stock ideas.

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While we have witnessed tremendous change in our industry – such as regulation and banning of conflicted incentives or mandating that advisers satisfy the ‘best interests’ of their client – families should still be, rightfully, wary of who they work with.

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Instead of encouraging short-termism, or the ‘next best thing,’ good investment advisers design and build strategies that match the long-term goals and capital needs of each client. They should think more about the possible risks, or unknowns, rather than just the opportunity, which while exciting, is what leads many investors to excessive risk taking.

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A wealth manager is more like a high-performance coach, bringing together the best athletes (investment managers) in the world to win at the Olympics (outperform global markets).

Just like each athlete in a team might bring together different skills or qualities to better the overall performance of the group, so do investment managers.

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Every investment manager will manage a different portion of the investment portfolio – from Australian shares, emerging markets, international equities, property infrastructure, bonds, private equity, or venture capital. The combination of these skills can lead to higher performance and reduce risk.

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Equity and venture capital are your high performing aggressive players; history says they should get you the best returns. While bonds and infrastructure are more defenders; they can reduce total portfolio risk and protect the downside.

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The right mix of these managers and assets help to achieve the type of team you need to align with your own goals and your own risk preferences – helping to achieve the desired outcome while also managing risks that may arise throughout the market cycle.

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What does an investment advisor do?

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No investment professional has a crystal ball. But a good investment advisor does understand the market cycle.

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They understand which types of assets or securities are more suited to particular clients. And most importantly, a good advisor listens to their client.

They take the time to understand their client’s particular financial circumstances, what their goals are, what the needs of their family are, and then they build a solution specific to those needs.

An investment advisor also helps to counsel a client to avoid the most common behavioural mistakes that everyday investors make.

These common behavioural investment mistakes can include:

• Selling at a bottom
• Managing fears or concerns around volatility
• Buying in a euphoric market
• Simply paying too much for assets that are overvalued or unprofitable.

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A good advisor brings process, sensibility and risk measures to achieve better results for their clients.

This isn’t just in the form of higher returns; they achieve results by by consistently managing risk and reducing drawdowns.

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In some regard, I think the best way to describe an advisor is as the most important insurance policy you can ever own. On average, a 1% annual fee to an advisor will help protect the accumulation of your lifetime wealth.

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An investment advisor can also help you structure or manage your investments in a way to reduce tax, maximise available concessions, take advantage of superannuation or otherwise benefit from the changing financial services rules and regulations that are relevant to you.

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EW Wealth’s Investment Process: How does it work? How do we determine asset allocation and what is our strategy?

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The first step for our team is always to understand what our client’s goals are – whether you are an individual, a couple or a family.

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We aim to get a comprehensive understanding of their financial position, their assets, their liabilities, their current income, what they need in retirement, and what the motivations are behind seeking financial advice.

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Once we understand enough about the person sitting in front of us, and who they are as an individual and as a family, we can build a solution specific to those needs.

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EW Wealth’s investment process is differentiated in the financial advice landscape.

We help high-net-worth families and ultra-high-net-worth families who often have much more sophisticated needs than everyday investors.

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Our clients are some of the most successful families in the country. As such, there are generally multiple stakeholders involved, multiple interests and many factors we need to account for in relation to their financial strategies.

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These issues often mean our solutions and our structure need to be more dynamic and more customised than your everyday financial planner, stockbroker or advisor.

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We effectively bring solutions to our clients that are typically reserved for large institutions or family-office type clients. As such, a core part of our business is partnering with some of the world’s leading and most well-resourced Investment Managers globally.

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We take the time to interview each team, understand their investment philosophy and together, create investment solutions that are purpose-built for the needs of our individual clients.

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We’re well positioned to do so because we can allocate such a significant amount of wealth and leverage our scale to have new products created for our clients. We can approach a firm with upwards of $50M per mandate, giving our clients economies of scale.

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Often, the solutions we provide our clients can be exclusive to our firm. They might be unavailable elsewhere, or more commonly – unavailable at the attractive price point that we can offer our clients.

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Our preferred model operates through a particular investment vehicle called a Separately Managed Account (SMA) which allows the end client to own every underlying security within each strategy.

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This is very different to a managed fund or an ETF where clients only own units in a trust and share the underlying investments with a pool of thousands of other investors.

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Having direct ownership of every underlying security gives our clients more flexibility, which is particularly important from a tax point of view because clients can choose to retain specific stock holdings that may have a large, unrealised capital gain.

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Also, as they’re moving from one strategy to another, any overlapping holding can be retained reducing transaction and tax consequences and in turn, bettering their net after-fee, after-tax result.

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The EW Wealth team meets on a monthly basis and debates our individual investment views, discussing investment risks and investment opportunities.

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We engage a number of the most successful portfolio managers to consult with us. We also consult with external experts on events that may impact our economy or financial markets.

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Whether that be an epidemiologist to help us understand the impact of COVID or a pandemic on financial markets and particular companies or a political expert to understand the changing dynamics between Australia and our major trading partners.

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We will engage with any other external expert that we think can give us and our clients expertise or advantage to better understand the decisions we are making in a global landscape.

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At an individual client level, our asset allocation really depends on the client’s ultimate goal.

If they’re conservative and want to mitigate the risk of permanent capital loss or short-term volatility, we will look at the most appropriate assets within the current market cycle to meet those objectives.

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Similarly, if clients don’t need access to their capital for 5 to 10 years, they can afford to accept higher volatility risk. As such, we can allocate to assets that are most likely to deliver the best returns over that period while understanding that clients will not be drawing on that capital in the short term.

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Ultimately, everything we do in our investment process is to:

• Manage risks in the global investment landscape
• Manage risks in terms of individual investor behavioural mistakes
• Consider the current opportunities in the world economy and how we can best position portfolios for it
• Work with leading institutions that can build solutions that specifically capture those opportunities and account for current risks

What’s different about the way EW Wealth works with clients?

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Our investment process is truly flexible and responsive to our clients’ needs.

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We are active managers constantly reviewing risks and opportunities, and building portfolios specific to those.

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We interview hundreds of new managers every year conducting ongoing due diligence, monitoring performance, monitoring changes in the global economy and positioning client portfolios accordingly.

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We are truly diversified – every client doesn’t carry concentration risk within their portfolio. No position will make them, no position will break them.

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Our clients have exposure across almost every global listed asset class from Australian equities, international equities, emerging markets, infrastructure, property, Australian fixed income, global fixed income, alternatives, private equity and venture capital.

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But the underlying weighting to each of those asset classes will vary significantly depending on the financial result we’re trying to achieve.

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We also think long-term. We’re not stockbrokers. We’re not incentivised to transact. We’re not thinking about what the market will or won’t do in the next two weeks and you won’t ever find us pitching a single stock idea.

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We are wealth managers and we are always trying to build the team that will best perform the job that our client is trying to achieve.

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If you are interested in finding the best investment team to help you achieve your goals, speak to an investment advisor at Emanuel Whybourne today.

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We have partnerships with the world’s best investment managers globally, with solutions, structures, and expertise that’s not available almost anywhere else in the Australian wealth landscape.

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We help those looking to invest in Sydney, Brisbane and the Australian East Coast. Contact us today.

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Regards,

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Ryan

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