Portfolio management: on the crossroads

By Ksenia Goncharova, sales manager, financial services, Comarch

September 21, 2020 | Comarch Finance

Individual investors don’t always know how to manage their money in case of major global events. What role do banks play in guiding and educating those investors in such moments? 

In the first six months of 2020, Belgian investors have shown an increasing interest in online investments and made 50 percent more transactions than last year. According to the Financial Services and Markets Authority (FSMA), the volume of traded Belgian shares grew more than fivefold during the coronavirus crisis.

When major global events of this kind occur, people become very much divided: some are ready to jump at the opportunity to make the best of a crisis, and some other adopt a wait-and-see attitude. 

The banks that strategically want to seduce the first group bet on a combination of excellent service from an online broker, and the expertise of a large financial institution. But it is in the case of casual investors that banks may have the strongest cards compared to their fintech rivals. Is there a way to engage those who need guidance in turbulent times when many questions remain unanswered and people are on the brink of a total panic? 

In the sea of change
This equation is relatively easy to solve for high-end banking customers, such as private and personal banking clients. These days, they demand more remote services from their financial institution, more ad-hoc video consultations and a good view on what is happening with their assets wherever they are.

For the mass market however, the go-to strategy until now has largely been either full standardisation or automation with occasional portfolio reviews face-to-face in a branch. In Europe, the implementation of Mifid II directive was a big step towards informing all clients, including retail segment, about risks and projections related to their invested amounts. But there is definitely not much room to address the concerns of investors, especially less experienced ones who don’t always know how to interpret voluminous reports and how to react when market volatility kicks in.

Protect and serve
Never before in history have the financial markets fallen and risen almost equally fast, creating a great tumult on the market – with its’ winners and losers. And so banks have an important role to play in respect of guiding their customers and overall stability of the markets. First of all, by diffusing key investment principles to their entire client base and adopting them as a backbone of every conversation with clients: invest in a diversified investment portfolio, have a plan and stick to it, avoid impulsive trading, etc.

The choice of “10 commandments” may vary depending on the philosophy of each financial institution and take various practical forms: video materials, educational events, FAQs, blog entries, infoletters, webinars. Such educational tools not only allow to raise the level of knowledge about financial markets but also to create a stronger sense of trust.

The personal touch
In the space of personalised advice, financial education might focus on long-term results and investment horizons, developing comprehensive financial plans, or discussing concrete goals that customers care about. As in the past months the markets have experienced both large gains and sharp drops, it is fundamental to provide clear information and recommendations when portfolio allocations are off track and require adjustment. But what is even more important is to make sure that the clients are aware what impact such movements may have on their long-term targets, to develop a financial plan, or revisit it if it’s been a while.

It's all about relevance
Technology has become an indispensable part of the strategy to achieve these goals. On the positive side, banks had to adapt to Mifid II requirements. They now have data and – to a certain extent – tools and processes needed to act quickly and at the right moment. On the negative side, making effective communication out of it remains a big challenge.

In order to be more relevant for mass-market customers in difficult times, presenting summarised and more targeted information to the customers becomes critical, eg focusing on fewer details at first glance and more information available for deep-diving into each section that interests the client. Experts point out that the next review of Mifid regulation, expected four to five years from now, may drive the market in this direction as well, making it a requirement to present information a retail investor in a more manageable way than it is commonly done now. 

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