Investors in Asia traditionally sought investment ideas, products, and execution services from one or more of the many private banks that operate in Asia. Many investors have relationships with multiple private banks – each private bank and its relationship manager is usually unaware of the investor’s overall exposure to various asset classes, yet is happy to propose investment ideas on a transactional basis. Until fairly recently, most investors were unaware of other options available to them – which might be more closely aligned with their needs. One such option is to engage independent asset managers (IAMs), which offer wealth management services independent of a private bank.
“We offer bespoke investment management and family office services to sophisticated individuals, entrepreneurial families, and institutions – under a transparent fee-based model,” explains Nicholas Moraitis, Senior Client Advisor at independent asset management firm Crossinvest. He shares four advantages that IAMs have over private banks.
1. IAMs are Independent
IAMs’ interests are closely aligned with those of their clients. “Our investment team independently reviews investments and fund managers to target the best-performing options with the lowest fees for our clients,” Moraitis reveals. “We work with banks to manage client assets as well as to execute sale-and-purchase orders – ensuring that their assets are as safe as if they had dealt with the bank directly,” he adds.
As banks function mainly as brokers, IAMs are generally able to significantly reduce transactional costs incurred by clients. Also, IAM advisors aren’t motivated or measured by the revenue they generate: “We charge an annual management fee, so our only motivation for suggesting a solution is to improve performance and safeguard client interests.”
Whether they operate on a discretionary or advisory basis, the fee remains the same – it does not increase with more frequent trading, so does not incentivise needless transactions. “This allows us to focus on a medium- to long-term portfolio-based approach for our clients,” adds Moraitis.
2. IAMs Can Access Institutional-class Investments
Broadly speaking, most mutual funds can be bought in either a retail or institutional class. While the management, mandate, and investment holdings of the two do not differ – the upfront sales charge and ongoing management fees charged to the investor will differ significantly.
Most direct banking clients will be offered access to the retail class, primarily because of the size of their investment transaction. This comes with a higher inbuilt management charge, partially rebated to banks as a trailer fee – which is one of the reasons they favour these over institutional classes.
“One of our key objectives is to keep all and any outside fees our clients pay to an absolute minimum – we always aim to aggregate our orders and contact fund houses directly to ensure we access institutional classes,” says Moraitis, adding that this improves the performance of client portfolios.
3. IAMs Offer More Stability
One frequent complaint by investors is that their relationship manager (RM) at the bank keeps changing, often to be replaced by another salesperson. This leaves clients in a situation where they are dealing with an RM unfamiliar with their investment strategies or who simply tries to push products on them that they neither want nor understand.
The rate of attrition at IAMs is significantly lower as they attract senior bankers who aim to manage their book of clients on a long-term client-aligned basis.
4. IAMs Are Transparent on Pricing
“One of the core differences between how IAMs and private banks operate is the way fees are charged,” says Moraitis. “This arises from the fact that we work for our clients, whereas RMs work for the bank.”
In practice, this means that clients pay IAMs an ongoing advisory or management fee – whereas private banks usually operate on a transactional model, with each trade earning the bank a fee.
This means more transactions would result in more revenue, which leads to a natural conflict of interest because the bank is motivated to ensure more frequent trading as this increases revenue and profitability. This can often lead to clients being encouraged to trade more frequently than is in their best interests.
While many investors in Asia understand the commercial dynamics of the transactional nature of their banking relationship, they are often under the illusion that they are not paying a fee for anything else.
“There is no such thing as a free lunch,” Moraitis says. “By the time one adds the fees charged for each transaction – the upfront and ongoing management fees charged by the mutual funds, the distribution cost for insurance products, and the embedded fees hidden within structured products – the total fees can be far higher than what one would pay an IAM.”
Learn more about what IAMs such as Crossinvest can do for you.