How to analyze bespoke investment ideas to help clients achieve their goals

One of the main reasons wealth managers and private banks (referred to collectively as distributors in this article) add bespoke investment products to their offerings is to attract new business and retain existing customers. To realize these outcomes, the distributor must help its customers achieve their goals. That means matching their needs with the right investment ideas.

Internal research requires resources such as a team of analysts specializing in different sectors. However, these resources are typically only available to bigger players. The alternative is to reach out to issuers to share their ideas, but this approach may lead to a conflict of interest.

Futora’s platform provides users with tools so they can conduct their own research effectively and efficiently. But before discussing these tools, let’s briefly recap the idea generation process.


How distributors research ideas

The first step in the process is to understand the customer’s needs. The type of information which must be gathered applies to all products, including whether the customer wants to grow their capital or generate an income, the length of their investment horizon, and what level of risk they feel comfortable with. To meet the requirements of the Markets in Financial Instruments Directive (MiFID), distributors must also classify their customers as retail, professional, or eligible counterparties based on their experience and knowledge.

Distributors use this information to source investment ideas. As mentioned earlier, reaching out to the issuers can lead to a conflict of interest if they try to push ideas that suit their own agenda, such as a product meeting their risk appetite or delivering a higher margin. So for distributors to serve the best interests of their customers, they should research ideas internally and then shop around with issuers to secure the optimal price.


Introducing Futora’s research tools

Futora’s platform comes with three built-in tools to help distributors research ideas.

Backtesting

Backtesting is based on the premise that if a trade succeeded in the past, it will probably succeed in the future. This tool analyses an idea by demonstrating how the trade would have performed using historical data covering a similar time horizon to the customer and a range of market conditions. Distributors can either approve or rule out an investment idea according to the result of the test.

Forward- looking simulation

Futora’s platform also features a forward-looking tool which uses a technique called Monte Carlo Simulation to replicate the performance of a trade multiple times based on different market conditions. It provides a distribution of results which are averaged to calculate an estimated outcome.

Risk management

One of the requirements of the Packaged Retail Investment and Insurance Products (PRIIPs) regulation is distributors must assign products a Summary Risk Indicator (SRI) score of between one and seven, where one indicates low risk and seven indicates high risk. Futora’s platform automatically assigns an SRI score to an investment idea, helping distributors to make sure that it matches the customer’s risk profile.

To learn more about how Futora’s platform can help your private bank or wealth manager source bespoke investment ideas for your customers, arrange a demo today.