Our US correspondent reports back from a conference that delved into the issues driving wealth management both nationally and around the world.
Candid observations about alternative investments, practical advice on how to help clients overcome biases, politically incorrect observations from a veteran asset manager and the need for advisors to be a client’s “longevity partner” highlighted this year’s Strategy Forum presented by the Investment & Wealth Institute in New York City.
On the practice management side, the dynamics of working within teams, the complications of dealing with a hybrid work schedule, and issues around firm equity, bonuses and profit sharing were top of mind for wealth management attendees at this year’s conference, according to IWI chief executive officer Sean Walters.
Private markets and alternative investments, along with international opportunities are “by far” the sectors drawing the most attention from asset managers, according to Walters.
Accordingly, a session on “nontraditional investments” outside of public markets attracted one of the conference’s biggest crowds. Presenters at most sessions like this are usually long on hyperbole and short on candor, but Gregory Brousseau, managing director at Macquarie Asset Management, was the opposite.
The economics of successfully investing in alternative investments requires a steep learning curve and often involves taking a substantial illiquidity risk, Brousseau warned the audience.
Investors need to ask themselves if investing in a private market or other nontraditional assets brings a better return on a risk-adjusted basis, Brousseau said, arguing that it often does.
He also made the case that private companies are often more innovative than public ones; he suggested that advisors recommend a portfolio made up of 40 per cent publicly traded equities, 40 per cent fixed income, and 20 per cent nontraditional assets.
Perhaps the forum’s most practical advice came from Cornell University professor Suzanne Shu, who discussed how to help clients overcome biases.
Advisors should encourage clients to write down their predictions on how they expect an investment to perform to track accuracy to guard against overconfidence in the future, Shu said. “Humans aren’t good at predicting the future,” she noted, and need to be to be reminded that their beliefs are often not borne out by actual events.
Confirmation bias is well known, but Shu cautioned that advisors should also be on the lookout for biases such as availability, when items and events that are more easily imagined will be more available in memory than those that are bland, vague and less easily imagined and anchoring, when an initial but possibly less relevant piece of information is used as a starting point for later judgements.
Advisors should use defaults to help clients pre-commit to
certain outcomes and not be afraid to give feedback to challenge
client choices or verify their reasoning, Shu said. She also
recommended reading Why Smart People Make Big Money
Mistakes, by Gary Belsky and Thomas Gilovich.