Be ready to discuss risk

Advisers should be ready with more in-depth, holistic risk data for their clients, BNP Paribas’ Asia Pacific director of investment reporting and performance says.

Tuesday, August 19th 2014, 6:00AM

by Susan Edmunds

Madhu Gayer said increasing regulation was driving demand for in-depth asset manager risk oversight and liquidity and compliance data. Custodians had transformed over the past five years from places to keep assets to providers of more sophisticated services, including performance analytics.

BNP Paribas’ clients in New Zealand include AMP, Tyndall and Devon.

Some asset managers could use increased levels of risk data as a point of difference in the market and a way for the principals to understand business risk, he said. But there was also increasing appetite from investors for the information.

Advisers could expect to get more questions about the risk taken to get a return, especially from investors who had been burned by the financial crisis, he said.

“How you deliver value is different for everyone. It’s about having that awareness and more knowledge of what clients need. What risks are being taken? It’s good [if an asset manager] has a good stock idea but is it sustainable? They might have one good idea, but where are the rest? From a risk perspective, think about operational costs and what’s passed on to an investor.”

Investors were demanding best practice around risk reporting, he said. “Some market risk analysis is well embedded but for others it’s emerging. There’s a lot more innovation in our part of the world.”

Asset managers were increasing their spending on risk performance analysis.

The Financial Markets Conduct Act changes disclosure rules and requires asset managers to include a risk indicator scale of one to seven to make it clearer to investors how risky each investment is.

Gayer said that was a similar approach to that seen overseas. BNP Paribas had talked to the FMA about the regime, which was a fine balance to get the right amount of prescription, he said. “We met the FMA a couple of times and were able to say we’re a significant player in the marketplace with a readymade solution to help asset managers. That gave them some comfort that they weren’t introducing something that the marketplace couldn’t comply with.”

Barry Dench, country head for BNP Paribas Securities Services in New Zealand, said the risk scale would help advisers have those discussions with clients.

“It comes with pros and cons. People started arguing that it should have other considerations but I’d rather have something to start from, a base of understanding, rather than say the nebulous question of what is risk? It’s a nice place to start from an investor’s perspective.”

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