Collective Insight: Picking financial experts
The art and science of picking a financial expert
Just what constitutes skill or expertise? And how would you go about finding it, never mind defining it? This quarter in Col
lective Insight, we explore what makes an expert – be that an asset manager, adviser, trustee or investment consultant – and our contributors have shared both qualitative and quantitative perspectives to answer this tricky question. There is no doubt that while there is science in assessing skill, there is an art in determining whether expertise can be sustained in the long term. Ultimately, it remains your job to choose the expert.
In the first article, Michael Streatfield looks at how the rapid advance of technology has meant that information is everywhere. It has changed the way we draw on expertise. No longer do we need to seek guidance or advice from our network of family, friends and acquaintances – the Internet is littered with ‘expertise’. However, he argues, in the investment context it is not about the information or data that is available – it is when that information is synthesised in a meaningful way that skill is demonstrated. He also picks up on the ‘man versus machine’ theme, and sets out the value add of experts versus computers when there is a limited range of outcomes versus a wide range of outcomes. He concludes that there is a place for both, but sets out lessons for trustees, advising them on how better to navigate this brave new world.
Our second article takes a qualitative look at what makes an expert asset man- ager. In a nutshell, the authors agree that it comes down to people, process, performance and philosophy. We would add culture as a further important contributor to successful asset management – if it is well articulated, clearly understood and consistently lived. Teamwork is also crucial to getting the best ideas from talented people.
The team from Peregrine goes into more quantitative detail on how to measure skill. While it is easy to measure investment performance, and so to surmise that repeatable performance is based on skill, it is much harder to measure skill. They employ an innovative way to contextualise this by using cross-sectional volatility to measure the opportunity set and thus to evaluate fund manager performance when luck is taken out of the equation. It’s an insightful read and a fresh perspective on skill beyond people, process and philosophy.
In our fourth article, Deon Gouws assesses the traits of an overall wealth manager. Will performance alone count, or will a wealth manager be measured on understanding the client needs, educating the client and, controversially, which clients to work with the wealth manager’s style. No article relating to expertise and skill in the investment world can exclude reference to Warren Buffett or maybe… Lionel Messi and Cristiano Ronaldo.
Moving from the theoretical to the practical, we have also included a checklist to highlight what kind of skill and expertise are required to be a successful wealth manager, trustee, investment consultant and private equity business. What are the top 10 questions you should be asking your provider?
Finally, we conclude this edition with an article that turns the subject matter on its head and raises a point which we, in the industry, don’t spend much time thinking about. Delphine Govender shares a very interesting perspective by asking what makes an expert client. What is it that we as providers would value in our clients? Someone who behaves in a rational manner, who holds onto their investment troughs and peaks and buys an investment rather than selling it. In short, someone who understands their investment objectives and remains committed to them.
We trust you will enjoy the read.