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Today's Date: 22 October 2014
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Wealth management: No more set it and forget it
TOPIC: Investments
By: Michael Klein | mklein@cfp.ky
07 March, 2012

BNY Mellon opened its first wealth management office in the Cayman Islands in January. The Journal spoke with Lawrence Hughes, CEO of BNY Mellon Wealth Management, about the move and the evolving nature of the global investment environment.   

 

The investment world has changed.  

The financial crisis had a disastrous impact on many investor portfolios and was followed by a period of uncertainty and increased volatility.  

While many are hoping for a return to “normality”, less volatility and investment returns of earlier decades, Hughes says the changes are permanent and that “this is the new normal”.  

He believes that more people are likely to fall short of their goals in this decade than in any other time, perhaps in history, but certainly in the last 50 years. 

Not surprisingly investors are more pessimistic than ever before about the investment markets and “bleak is the new black”, says Hughes. 

“It is fashionable to be pessimistic, but we actually think there are some real opportunities out there.” 

To grasp these opportunities, however, it will be necessary for investors to adjust their wealth strategy and the way they manage their money. 

No more set it and forget it 

This means firstly that investors need to become an active manager of their money.  

The old set it and forget it approach, where a strategy was set for the next 10 or 20 and slightly rebalanced ever so often, no longer works, says Hughes.  

Because trends used to develop and disappear over a period of years, rather than months as it is the case today, investors will miss too many opportunities and take more risks by following the traditional approach. 

“So if you don’t move and move quickly, you miss those opportunities. And on the other hand, you can lose money very quickly in the markets we are in today.” 

  

Dynamic planning  

In addition investors need to incorporate all of the planning techniques and tactics into their wealth strategies.  

Although opportunities vary by country and by location one example he cites are interest rates.  

“Government in the US for example has a minimum interest rate that they assume when you transfer money to the next generation and they make calculations based on what the present value of a transfer would be. That is an opportunity because interest rates are so low at the moment,” he explains. 

Similar opportunities exist around the world and integrating money management, tactics and techniques can encompass anything from selecting certain types of assets to taking advantage of trust laws and estate planning.  

“So it is broader than just risk management. In order to mitigate risk and maximise your gain you really need to integrate your money management and your planning techniques.” 

 

Client advisor engagement  

Finally clients need to be more engaged and familiar with the investment plan devised together with their advisor.  

Specifically in a downturn or volatile markets clients who don’t truly understand their plan can get so nervous that they want to sell at just the wrong time, says Hughes.  

“Because of the volatility, you cannot predict every move that is going to happen. You have to have a plan that you understand, that you are completely engaged in, that you believe in so that you can stick with it through thick and thin.” 

As a result the process can no longer be delegated entirely to the investment advisor or wealth manager.  

While the client is not expected to micro-manage and choose stocks or bonds, it is necessary for the investor to understand what the advisor is doing and how it relates to the overall investment plan. 

“And we also need that level of engagement for the planning. In the old days you could have a will and you could have a trust structure for wealth transfer and you could create that when you were in your 20s or your 30s and that plan would be the plan you would die with and your money would transfer,” says Hughes. 

“That is not the way to maximise your wealth in the world we live in today. It is to take advantage of those planning opportunities as they arise and it might be constantly changing tax law, constantly changing interest rates.” 

To identify these opportunities on behalf of clients in each location is the main part of the task. Taxes are likely to rise and the time to think about that is before the tax rates change, whether in the US or other places. 

Hughes sees the new BNY Mellon Wealth Management office in Cayman as an investment made on behalf of clients.  

“It is not the best time in the economy to be making an investment but we are not making this investment for 2012, we are making this investment for many years to come.” 

Demand from clients for the types of services that BNY Mellon can bring through a Cayman trust company called for the new office with added experience and resources.  

This does not mean that the firm is new to Cayman. For 30 years the wealth manager serviced clients through an agent on Island. 

“So we are not brand new to Cayman, but we have reached a phase here where we have enough business, enough clients that it was time for an incremental investment and the timing was perfect and we were able to attract a very talented person,” Hughes said, referring to Patrizia Bruzio, vice president for International Wealth Management Wealth Advisory Services and general manager and director of the BNY Mellon Trust Company (Cayman) Ltd, who is heading the Cayman office. 

For the future Hughes sees potential for the business to expand further in Cayman. “You can see we built our offices for quite a few more people than we have here today with the idea being that we grow.” 

 
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