Odyssey study highlights the need for greater investor protection in wealth management

25 November 2008

Odyssey Financial Technologies, the market leader in wealth and asset management systems, has published a white paper called The Consequences of the 2008 Financial Crisis for Wealth Management. The white paper underlines the need for wealth management institutions to improve their client communication on investment risk and provide more systematic, structured advice on asset allocation to protect and enhance the performance of their investments, especially when the markets are unsettled.

Odyssey's white paper shows that asset allocation services, which are often the reserve of very wealthy clients, will become essential in the aftermath of the financial crisis, and be made available to a larger number of clients. This applies to execution-only clients, in particular. Such investors are often under-protected, only receive scanty advice on how to invest their money, and suffer simultaneously from a lack of portfolio diversification and practically non-existent risk management.

Didier Pitton, Product Marketing Director, Odyssey Financial Technologies, states: "In the fall-out of this unprecedented financial crisis, financial institutions will have to redefine the content of their investment advice offering and make their asset allocation advice available to a wider public. Professional asset allocation has the advantage of taking account of all the investment risk factors, attaining optimal diversification and therefore better protecting portfolios from a fall in the markets.

“By pointing execution-only clients to more structured investment advice services and applying the tried and tested principles of asset allocation more rigorously, financial institutions will ensure that investors benefit not only from better protection but also from better portfolio performance."

The white paper predicts that the 2008 financial crisis will bring about a reinforcement of legislation to protect private investors. In particular, this will require stricter client relationship opening processes in order to make Know Your Customer rules and client investment profiling more systematic.

Antoine Duchateau, CEO of Odyssey Financial Technologies, adds: "Lots of clients, forgetting the potential investment risks a little too quickly, were simply not prepared to take the brunt of the heavy falls we're currently facing. Consequently, private wealth management institutions will have to apply stricter procedures aimed at protecting their clients and ensuring they understand the different risks linked to financial investments and only invest in the products they really understand. Private clients are now seeking more than ever to understand and even quantify how risk is created in a portfolio in both normal and abnormal market conditions.

“In this context, technology plays a major role. Only technology can quickly allow new processes to be efficiently set up while keeping costs at a reasonable level. ”

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