Inept management of currency risks often causes headaches with private clients. Forex specialist Felix Adam tells finews.com how to get to the root of the problem.
Felix Adam, you say that asset managers and clients neglect opportunities and risks involved in currencies. Where are you seeing that?
Traditionally, the focus is on asset allocation and the underlying investment categories such as stocks, bonds, and alternatives. Usually, the client specifies a reference currency which then covers 70 to 80 percent of the investments. Consequently, currency-related opportunities and risks are not sufficiently considered and mistakes are made as well.
Moreover, many currency hedging products lack transparency and are expensive. Because information for consultants and clients is not easily accessible, the wrong products or investments are recommended sometimes.
What are the solutions?
Asset managers and private banks must keep developing their client-oriented thinking. This applies with respect to the analysis of the client’s portfolio from the currency perspective and the presentation of differentiated solutions. It should be the standard when rendering consulting services. This risk of a dissatisfied client and of an account closure is clearly reduced.
What role can active currency management play in a consulting mandate?
Foreign exchange rates are influenced by all political and economic parameters. This likely makes currencies one of the most complex investment instruments which for many clients is not easy to assess – even though many of them are entrepreneurs who are therefore interested in the development of currencies.
«An eye-to-eye discussion creates added value»
An advisory mandate allows consultants to comprehensively advise their clients. This means that apart from asset allocation, active currency management and the systematic placement of products with regular earnings is part of the concept, alongside active risk and profitability appraisals.
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