For capable financial advisors—if they personally lack the requisite expertise—the ability to source qualified specialists is rarely a major obstacle.
In sum, while state-of-the-art technical expertise is needed for stress testing the wealth management solutions of the ultra-wealthy, if financial advisors do not have this know-how in house they can certainly find it. BlackRock has made its institutional Aladdin platform available to advisors and numerous smaller software programs like Rixtrema and Riskalyze are now available specifically for advisors. Moreover, while high-end technical proficiencies are essential, because they can be outsourced without much problem, the differentiating factor is the human element.
The Stress Testing Process
There is a systematic way to go about stress testing (see Figure 1). Unfortunately, few professionals today are particularly adept with the process. Most professionals mistakenly concentrate on the technical aspects of a client’s wealth management solutions. In reality, the core of the stress testing process is the human element.
What clients are seeking to attain, what problems they are looking to solve, what opportunities they are seeking to benefit from should be the driving force behind the wealth management solutions they employ. Then, the wealth management services or products can be evaluated. There are numerous ways to dissect and critically assess financial services and products.
Based on the evaluation of the existing or proposed wealth management services and products, alternative services and products might be considered. It can be very useful to do side-by-side comparisons between the wealth management solutions. The result of the process is recommendations.
Implications
The success of financial advisory practices is predicated on added substantial value. When it comes to the ultra-wealthy and most individuals—and more so the super-rich—being able to introduce ideas and concepts can sometimes work. On the other hand, such an approach has empirically repeatedly shown to have some but limited ability to generate new opportunities.
Stress testing, in contrast, has empirically and experientially proved to be a tremendous way to deliver value to the ultra-wealthy. Financial advisors who master the stress testing process—being able to provide high-end technical proficiencies plus, and more important, being attuned to the human element—are in great demand by the ultra-wealthy.