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A Private Wealth Manager’s Biggest Challenge

One of my biggest challenges as a private wealth manager to HNW clients over 15 years Comprehensive Blanace Sheetwas the lack of visibility into their balance sheet. It is hard to provide the best possible advice without transparency with regard to clients’ assets, be those held with or held away, online or offline accounts. Time is always an issue for advisors and clients. How much time do you want to spend asking your clients for up to date information when you have limited time with each client to begin with? Advisors are looking to provide advice — but without information, this is a struggle. Finding a solution to this problem is the core idea behind creating a next generation portfolio management system for advisors and clients to both utilize. Each party has slightly different needs when it comes to managing wealth, but the end goal for everyone is the same – grow and protect wealth.

How many advisors does the average HNW individual have?

HNW investors have more assets to protect and therefore tend to have more advisors than the average investor. Recent data from Cerulli (@cerulli_assoc) shows that the average HNW investor has 3.7 financial advisors. Even if an advisor manages a majority of his or her client’s portfolio, this research indicates that there is still a large blind spot when it comes to understanding the entire picture. In a post-Madoff era, clients are more averse than ever to placing all of their eggs into one basket. One way they diversify is by employing multiple advisors.

We call this institutional (or advisor) diversification. In fact, this trend is universal and creates an entirely new form of portfolio risk. Many advisors employ overlapping strategies, increasing the possibility of having highly concentrated positions in certain asset classes or regions, which can create over-exposure to emerging markets or an increased tax burden, for example. So the problem all investors face is truly one of being able to manage, collaborate, and effectively communicate about a complicated and disparately managed balance sheet, a challenge that increases in magnitude for high net worth investors.

A common example of where the strategy of institutional diversification can create problems for investors is seen in “WashSale” rules. Perhaps one advisor decides to take a loss because of a bad investment decision and the other sees a buying opportunity. The end result is that come tax time, your advisors have negated one another, increasing your tax burden unnecessarily.

The Best Solution for Collaboration with Other Wealth Mangers

The reality is that the advisor world is fragmented and a solution to the problem has been slow in coming to the industry. With multiple managers allocating wealth, making trades, and advising on your portfolio, communication is essential. For true success in a multiple advisor portfolio, each advisor must have line of sight into assets held away and be given clear directives and focus. Software can be the solution to this problem – in fact it has to be – or else investors will not get the most out of their investments.

Portfolio management software makes it much easier to employ a multiple advisor strategy and to provide transparency and communication amongst members of your investment team. Our platform at Wealth Access puts the client in control of all of their financial information and enables them to easily share all or parts of their information with multiple financial advisors. Also important, technology cuts down on the time it takes to maintain multiple investors.

While some advisors cringe knowing that other advisors are able to see their every move, others understand the direction of the financial services industry and are relishing the opportunity to provide cutting edge software to their clients to provide the best advice. At the end of the day, serving the client is the most important thing for an advisor; transparency and communication are the keys to ensuring that your advice makes sense relative to the entire balance sheet.