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Portfolio Consulting as a Process: Thematic Consulting

© Joachim Löning

A bank that wants to organise investment advice needs a structured approach in order to stand out from the competition in the long run. On forward-finance.de we present some exemplary processes in a loose series. This article revolves around an advisory approach that we have called thematic advisory because investment narratives play a central role in it.

The functions described below are part of our comprehensive service offering for thematic advisory as an exemplary variant of the portfolio advisory process.

Regulatory requirements

Approaching the investment advice process from a client profiling perspective, the client’s risk capacity, experience and knowledge, financial circumstances and investment horizon are captured. There may be differences in detail between different providers of investment advice, but the above-mentioned dimensions of profiling are prescribed by regulation. How the path from the collection of client profile data to the product is then designed is largely at the discretion of the bank and thus there are no special regulatory requirements for advice with and along investment themes. If at the end of the process the products are suitable, a final regulatory requirement is met.

Screen sharing in thematic advice

In thematic advice, the client and advisor jointly use a software solution that is shared on the screen. This screen sharing is of considerable importance because the solution provides visualisations that are dynamically calculated in the counselling situation and can also be changed in the interaction with the client.

The counsellors’ skills are enhanced and software becomes an integral part of counselling. Counselling is organised around the client, who is at the centre of the joint activities with his portfolio. The consistent focus on his personal portfolio becomes visible to the client because there is only one screen on which his investments can be seen from a holistic perspective.

The focused appearance through reduction invites to discover possibilities and does not make high demands on the user. The software solution provides the advisor with a viable and flexible platform in every discussion about the portfolio.

Research in thematic counselling

The advisor is well equipped for the conversation about the portfolio, because the entire research of the bank is available to him. Directly next to the visualisation of the client portfolio, about 15 topics considered by the bank’s research are displayed. Each of the themes is underpinned by a number of investable products.

Theme and product represent different granularities. For example, a theme (such as health and care) is loaded with economic or sociological meanings, whereas a share (such as Fresenius) is loaded with specific business aspects of the company related to the share.

The different degrees of resolution of topic and product are reflected by innovative visualisations that the consultant and the client have at their disposal. At the theme level, the interactive risk/return view of the portfolio shows the area that can be reached with the investment theme of health and care. Client and advisor jointly see what effect the theme or, optionally, individual securities can have in the client portfolio and how a desired effect can be achieved.

The research is related to the client’s portfolio via the theme, which is the central pivot of the thematic advice. In addition to the portfolio display described above with our signature widget “Portfolio Spider”, there are, for example, bar charts with which various intersecting axes can be placed through the portfolio and clearly displayed.

Investment themes that interest clients

The investment topic is first of all an offer to make a connection in a conversation. The client may know a topic from the media or his interest may have a different origin. It is always about the effect of the topic on the client’s portfolio and his interest, which is linked to the bank’s competence. The bank places its research at the service of the client at the topic and product level and calculates the effect on his investment assets individually and dynamically.

Optimising the portfolio with investment themes

Client and advisor are basically free to choose the themes. If the client has a specific investment idea, the bank’s existing knowledge is searched. If no information is available in this area, other sources are searched so that the client always sees results relevant to him in the results display.

f the customer does not find any of the products linked to the topic in the bank research interesting, but “just wants to see attractive investment ideas”, a function is available that shows which of the available topics and securities improve the risk/return structure of the portfolio. Powerful algorithms and high-performance infrastructure are available in the background for the direct simulation of portfolio effects. Advisors and clients can be shown automatically calculated improvement potentials. For the calculation of optimisation potentials, e.g. model allocations of the bank can be seamlessly integrated as benchmarks.

In terms of product strategy, there is no fundamental commitment to individual product types. Nothing is “sold” to the client. However, the bank issues funds in the thematic areas that are attractive to it, which are thus naturally included in the product list and represent mathematically attractive investments for the client portfolio.

The constant risk/return representation that the client and advisor see on the screen does not need to be explained methodically because with the chosen visualisation the thematic discussion is in the foreground and the client sees how he can expand his existing investment spectrum with a theme. The visible effect of the themes in the client’s existing portfolio links the client’s subjective interests with his objective investment – this strengthens identification with the portfolio.

Solutions for enabling thematic counselling

The thematic advisory service is consistently oriented towards the existing client portfolio and has been continuously developed for years. The opportunities for client retention and development that have been opened up have proven to be economically successful because more income can be generated with less effort. In addition, liability risks are reduced and the quality of the consulting result is improved and secured.

The core competence of tetralog lies in the intelligent algorithmic mapping of the interaction between client and institution. tetralog’s software solutions empower advisors for long-term client retention and we are proud to also be part of the development behind thematic advice.

We offer modular solutions for the integration of sustainable strategies and products in the advisory environment and look forward to exchange and cooperation.

Munich, 16.12.2020

Read on:

ESG in Investor Profiling

Environmental Issues, Social Responsibility and Corporate Governance as Secondary Conditions for Investment

Andreas Beck, Gabriel Layes, Ethische Investments aus Sicht der Portfoliotheorie
in: Manfred Stüttgen (Hrsg.) Ethik von Banken und Finanzen, Theologischer Verlag Zürich; 2. Auflage (4. Januar 2019)
https://www.amazon.de/Ethik-Banken-Finanzen-Manfred-St%C3%BCttgen/dp/3290220370

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