In the past two years, the Netherlands Authority for the Financial Markets (AFM) has devoted more attention to the quality of wealth management consultancy. Within this context, the AFM performed exploratory investigations this year at thirteen (banking) investment firms concerning the quality of investment advice and wealth management. These investigations show that there is room for improvement in a number of areas. This can mainly be done by obtaining better insight into the client situation and the client's objectives and involving them more explicitly in the provision of services.
In the guideline entitled 'De klant in beeld: Aanbevelingen voor zorgvuldig beleggingsadvies en vermogensbeheer’ (Dutch language), published on 22 November 2011, the AFM provides investment firms and advisors various guides for doing so.
The guideline relates to the provision of investment services to clients who do not qualify as professional investors. The AFM intends to discuss this further with market parties in 2012 and ask for attention for the quality of the provision of services.
The AFM expects that the provision of investment services will go through drastic changes in the years to come. It would be prudent for investment firms to consider the various forms of services they are offering and the added value they can and wish to offer to clients.
- Guideline 'Focus on the Client: Recommendations for suitable investment advice and asset management’
The expertise of advisors
The investigations show that the focus of expertise at many investment firms lies primarily with the investment process. In the development of professional expertise of advisors, skills to get to know the client well during the inventory process and to properly inform the client receive less attention. This while the way in which the advisor obtains information influences the completeness and depth of the provision of investment services. If investment firms pay more attention to this aspect, this will allow them to further increase the quality of the services.
The advisor implements the investment policy
Suitable services start with a carefully thought-out investment policy. Said investment policy contains, inter alia, the criteria for the selection of financial instruments. It is also important that policy is applied in practice and that it is pursued by advisors when issuing advice to their clients. When issuing advice, the advisor has to assess whether the characteristics of the selected and available instruments are suitable for the client. A number of financial instruments entail special risks. The client has to be willing and able to bear these risks.
Specific and measurable objectives of the client
In order to be able to recommend a suitable investment solution, the advisor will first require complete insight into the client's situation. Most clients wish to realise an objective with their investment. Sometimes very specific, sometimes a higher return than a savings account. This objective has to be central when issuing advice. The advisor needs the complete client image to be able to issue advice that is suitable for the client.
The objective is also important for monitoring the investment portfolio
Investment firms regularly check whether the recommended investment portfolio still moves between the agreed bandwidths of the strategic asset allocation. During such checks, it is also important that the progress when compared with the objective to be achieved is checked each time. This means that steering not just takes place from an investment-related perspective or from a risk-based perspective, but that steering also takes place in order to be able to achieve the client's objectives.
In doing so, the advisor ensures that investment portfolio is suitable to the changing client situation at all time, the objectives of the client, the (maximum) risk he is willing and able to accept and the other agreements made with the client.
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