Sustainable Wealth Management

A simple questiondeserves a simple answer.
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A simple question what is sustainability for a wealth manager deserves a simple answer. For many the aspiration is serving a client over their lifetime to become a trusted advisor to their family for generations and earning a decent margin in the process. In fact it may be a good definition for any company, but then of course the question is how to do it?

For others the question of who is serving whom and to what end has become too complex creating confusion, stress and fragility that it is not easy to manage from the inside or understand from the outside. This piece out lines three lenses that may help organizaations be clear about their sustainability.

"So what?" you say; the suggestion is that seeing sustainability primarily as a service and as a purpose can deliver the right type of complexity that keeps companies on a leading edge adding to revenue and increasing efficiency over time.

Organisational Complexity

The global financial crisis is the perfect example of how the wrong type of complexity leads to:

  1. Confusion (who is serving whom and for what end)
  2. Stress (inability to manage effectively)
  3. Fragility (loss of control)
  4. Beta (employee dissatisfaction and incentivisation)

On the other hand when clearly aligning service and purpose to governance this allows a company to weather the storm and develop:

  1. Clarity (new markets, services and products)
  2. Vision (client experience, retention and referral)
  3. Resilience (risk management into performance)
  4. Alpha (employee satisfaction and motivation)

Companies that are close to and are serving their customers with products and experiences that they love have the greatest brand value and loyalty. These often seem to be consumer goods and services, however there are plenty of success stories in other sectors and financial services too. And regards the ever present threat of delivery in the digital age - the Amazonisation of financial services; once service, purpose and governance are aligned it is much easier to manage the commoditisation of distribution or make something out of it.

Investment Risk

Alpha is the Holy Grail in the investment industry, that is to say consistent outperformance delivers large money flows and attendant fees and (short-term) performance has become concomitant with service. The paradox for many wealth managers is that most fund managers underperform their benchmarks and deliver negative alpha leading clients to question what is it they are paying for and a chase for return.

Performance is complex and uncertain by its very nature and not very predictable, however it is possible to get clarity about the nature of an organisation by aksing the right questions:

  1. Can you show better returns than the private investor?
  2. Can you take the confusion, stress and fragility away?
  3. Are you managing risk or promising return?
  4. Do you seek alpha or are you a safe pair of hands?
  5. Can you your integrate service and add value?
  6. How well do you know your clients?
  7. Are you sales or service led?

Once examined and explained consistently across products and services it is easier to deliver returns that are not constrained by constant reference to a benchmark (or other in favour asset class) and to get on with the business of providing a great service.


Most bear markets come out of the blue and are part of the normal cycle; they are relatively shallow and seen over a few years are something of a blip. Structural changes, such as a banking crisis, are multi year events or even decades long and in the case of companies and sectors structural change can be terminal.

The key to very good long-term performance is being able to differentiate between the two: being able to ride a bear market and being able to spot and sell poor quality and poorly managed assets. It is easier said than done; especially as good companies (and sectors) can slowly and abruptly morph into bad ones whilst upstarts seem to come from nowhere (these days).

With good tax management and compounding returns most clients would be happy and well served with benchmark-like returns - that is taking part in the fruits of economic labor. However, without clarity and honesty in the service this is more luck than judgment and not a great business model. Good long-term performance can mean being between what clients would have done on their own (panic out and panic back in because they can't differentiate or hold their nerve) and being around the benchmark.

A clear and honest process has more chance of delivering what is supposed to and the surprise on the upside is that it can outperform.

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