What are the challenges of an Investment Advisor?

Many clients and Wealth Managers see an Investment Advisor as a possible “money tree”. Since they know best, they would be able to generate returns and profits consistently. And hopefully, better than most people do.  And also, when the Investment Advisor explains that it is not always possible, it tends to elicit responses such as: “How about at least 4% returns annually or 7% annually?”

Investment Advisors are constantly being mistaken for being able to predict the movements of the financial market.  And it is not easy to clear up the misconception.

Some Investment Advisors manage a few hundred thousands of investment decisions daily.  Some manage millions or hundred of millions of investment decisions daily.

With clients & wealth managers relying so much on Investment Advisors to achieve superior returns, when should they enter and exit the market?  Which client should they help to execute the order first?  Quite obviously, it is for the earliest one.

But what if …

• The first 5 clients call in for a trade size of $100,000 while the next one is a $20 Million trade?
• There are 10 orders with different prices and the market is extremely volatile.

The above are time sensitive issues.  How about calls on entry & exit?  When is a good level to take profit or should you ever profit take?  When should you cut loss?  Or should you average down?

Market timing, taking orders, setting profit and loss level is easy for 1 client and 1 investment.  Imagine dealing with hundreds of clients and thousands of investments.

Investment Advisors are often caught in between mismatched expectations and also differing investment views.  Investment Advisors work in financial institutions and usually have their house view construed by their Chief Economist, Chief Investment Officer, Specialist for Equity, Fixed Income and Treasury.

Alongside, they have peers who are experts with strong individual views in Investments and financial markets.  To add to that comes the view of market, clients, and of course the wealth managers.  With so many differing views, how do Investment Advisors work on an acceptable investment framework and decisions of all parties?  And not forgetting the Investment Advisor also has a strong view too.

Read More: The Complexity of Market View, House View, Clients View & Your View

Investment Advisors have strong analytical skills.  They absorb tons of financial and economic information daily, ploughing the financial markets for opportunities and financial instruments for implementation.  They read so much that they are always glued to their computers, mobile phones, Bloomberg, Reuters and excel sheets.

They face tremendous stress and pressure keeping up-to-date with the financial market. Handling massive amount of financial assets stress the need to be able to react quickly whenever clients or wealth managers contact them.

• List of Financial News Agency
• List of Wealth Management Publication in Asia
• Looking at Bloomberg & Reuters
• Bloomberg in 60 Seconds
• Reuters in 60 Seconds

At the core of their role is Investment Advisory.  This involves proposing and implementing investment solutions.

Investment Advisors spend much of their time monitoring and reviewing investments. As every client has a different set of portfolio and entry price, amount invested and different strategies, Investment Advisors take on an incredible task of being efficient in tracking and managing the investments.

And keeping tab on the financial market concurrently.

Like any Professor, Economist or Fund Manager, building up knowledge and credibility are the most important.  It builds reputation. For Investment Advisors, it is the same.

Investment Advisors spend a great deal of their time learning about the financial market, the economy, equities, fixed income, foreign exchange, interest rates, commodities, portfolio management techniques, fund management, investment analysis and going for learning enhancements through major accreditations such as CFA, CAIA, CIIA, CMT.  Read More: 7 Top Global Accreditations for Wealth Management

For many Investment Advisors, their quest for knowledge is insatiable.  This places great pressure as this collective drive sets an incredibly high standard.

Deflation is one of the lesser known, but worst fears of Investment Advisors and for Economists and Central Bankers too.

For most Investment Advisors, a deflationary environment would immediately eradicate many jobs in the financial sector as the economy shrinks every year – value of production or GDP (Gross Domestic Product) drops.  Worst of all, it sparks a major contraction of demand, with less spending, lower price, negative investment returns and negative real returns.

Spotting when deflation is coming would be the greatest Nobel Prize for any Economist, Fund Manager or Investment Advisor.  Fortunately or unfortunately, central banks and governments in the world do all they can to prevent a deflationary environment. Read More: A Japanese Lesson in Deflation for Europe

And when deflation doesn’t come, we have bubbles, economic recessions, sector crises, bankruptcies for Investment Advisors to deal with.

• Global Financial Meltdown 2008
• Stories from the Great Depression
• Trillion Dollar Bet – The Demise of Long-Term Capital Management
• Nick Leeson bankrupt Barings Bank

These are the 7 challenges Investment Advisors face.  Anymore?

Related Articles:

• What is an Investment Advisor?
• How do you become an Investment Advisor?
• What does an Investment Advisor do?
• What are the challenges of an Investment Advisor?