When it comes to investing their cash, City hotshots are not as demanding as one might expect.
They know how to ask the right questions, but they also seem happy to sit back and let someone else take the wheel. Wealth managers appreciate both those characteristics.
People who work in finance are, generally, able to grasp the fundamentals of portfolio management. They are on the ball when it comes to market developments and they are not awkward about discussing money.
A client that possesses a high level of knowledge is always welcome, says Toby Walker, client director at EQ Investors. A good understanding of markets and investment principles minimises the danger of mutual misunderstanding, or frustration.
‘Less time explaining widely accepted principles [of] investing and financial planning frees up more time to understand the client’s objectives and then shape an appropriate plan to suit them,’ he said.
Some back-and-forth as professionals on an equal footing is also healthy when it comes to portfolio allocation. It might offer useful feedback about the market and lead to good results to be used with other clients.
‘Some [City workers] are hard to convert and we still have a few who think they are better than us,’ says Adam French, chief executive of Scalable Capital, a start-up where a quarter of clients are financial services professionals. ‘They ask hard questions but I like it. Answering them can take time but it also provides insight and helps us move our business forward.’
Despite strong views, once an allocation is implemented, financials pros apparently do not make for high-touch clients. Both the demanding nature of City jobs and the fact that spending 12 hours a day thinking about money may leave one disinclined to do so in one’s leisure time, ensures that ongoing handholding is minimal. Workaholics they may be, but investment strategy planning on the weekend is not exactly how they like spending their time, even if it is their own money on the table.
Walker adds there is another important factor to this relatively muted approach. ‘These individuals are often exposed to masses of financial information and market noise,’ he says. ‘Rather than making a decisive decision in terms of their own planning needs, they actually end up sitting on their hands.’
The risk, the bonus and the automation
To make the wealth manager’s life even easier, City workers tend to have an intrinsic understanding of risk and reward. Although it is fair to say the majority are rather cautious, understanding how the market works can make them more flexible than others.
‘None of our clients are risk-takers,’ said Ian Kavanagh, an investment manager at Hargreave Hale. Flexibility allows for some interesting decisions. ‘One of them, for example, likes investing in hedge funds because he knows how it all works. This is something with which others would not feel as comfortable.’
It is not uncommon to see City clients with larger amounts of cash on deposit, notes EQ Investors’ Walker. ‘Why? Much of their wealth is directly linked to the performance of the markets/economy.
‘Their job, income, stock (awarded to them as part of their remuneration) is all related to the performance of the company, which is more often than not directly correlated to the state of the economy. Clients are acutely aware that if the economy slows, headcount can be cut and share prices fall. Holding a higher cash reserve gives them some comfort/protection.’
Another intriguing aspect of this relationship, at least in the case of Scalable, is that such professionals seem to appreciate the benefits of the low-cost, automated service the firm offers. French puts it down to experience. He suggests that having spent so many years in the industry, his clients feel the human aspect of trying to beat the market may be somewhat overstated.
But not everyone agrees. Hargreave Hale’s Kavanagh, for example, says the firm’s City clients are largely uninterested by active versus passive debates.
Opinions seem equally divided on how much of their bonuses finance professionals invest. Kavanagh says it is a lot. Although they make up less than 5% of accounts handled by his firm, such clients are some of its biggest, often with seven-digit portfolios.
French has a more moderate view. People who have worked in the industry for years have done well for themselves, he says, but much of their money has gone on property or similar. ‘What they have done very well is maximising their pension allowances. A portion of their bonus will go into pension and investment, but not all of it.’ •