Information = data + analytics

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The way the world does business has changed significantly over the last two decades, especially when it comes to the investment market. With all the information a potential investor needs to make decisions available at their fingertips, it can be challenging for investment advisors to develop meaningful, long-term relationships with them. Is it time for the investment advisor to look at a different approach?

For several decades, the role of portfolio manager or investment advisor was clear – doing all the research to help clients make wise investment choices, coupled with ongoing relationship management. Investors wanted to be wooed, treated like royalty, and have the investment advisor prove their worth during lengthy meetings. From stock pickers to risk premia or smart beta investors, this was the case for just about every portfolio manager in the market. But in the last twenty years, and especially over the last five to ten years, the investor/advisor relationship has shifted.

Thanks to the easy availability of information online, more and more people are taking to private investment, day trading and other investment vehicles with little to no assistance from a qualified, trained professional. Sometimes, they get it right and make a great living, but other times, they are left in the dark, struggling to make returns on their investments – and that’s all down to the quality of information they’re getting.

But this isn’t the only thing standing in the way of the portfolio manager or advisor. In the past, it was considerably simpler to convince someone to take a chance on letting you manage their portfolio. A good conversation, a personal rapport, and a few well-placed meetings or lunches could grow the investment manager’s customer base quite effectively. The relationship was strongly focused on exactly that – relationships; and when a particular way of doing things has persisted over during decades, it inevitably finds itself being disrupted, as with so many industries these days.

As a matter of fact, with much stricter and tighter regulatory environments and significantly more stringent compliance requirements, that relationship simply must be built on the advisor’s ability to accurately, effectively and quickly gather and analyse data, and make predictions that are correct more often than not. There are now so many risk factors, investment styles, market sectors or themes like ESG, that one person cannot gather all the necessary data on their own. In many cases, this can be a game that’s only won by those with more resources, time and information to hand. However, there is another way for both advisors and independent investors to get the right information, when they need it.

Choosing a path

Let’s look at three very different investors – the first, a large pension fund with numerous employees, investing in complex investment strategies like mean reversion or short volatility carry trades. The second would be a mid-size private bank; and the third, a newly created family office.

The pension fund is faced with a problem: they are looking to grow their investment strategies to include a wide range of quantitative indices from providers both locally and around the world. However, they have traditionally left all their data gathering to two junior employees, who received the bulk of their information from external providers, and they are uncertain about the ultimate quality of the information provided – collecting wide-ranging, high-quality data has, over recent times, become far more important than traditionally, and has frequently been quite limited. The situation is compounded by the fact that in the past, more often than not, decisions were made based on which advisor they had the best personal relationship with, rather than the quality of the information. This has led to a few ill-informed decisions being made, resulting in poorly performing strategies.

In the meantime, the private bank is trying to increase its client base by building a reputation as a trustworthy source of highly accurate, reliable information. Their strategy is to give clients investment advice based on solid information and to help them predict outcomes with a high frequency of accuracy. Unfortunately, they are struggling to get this information as quickly as they would like, as the information gathering and analysis is being done manually, first by downloading data and then running it through a variety of single-task and fairly restricted software applications – all this combines to increase the risk of human error, and is a time-consuming and difficult task which limits the use of the data and as such the creation of value by the bank for their clients.

Finally, our independent advisor has decided to strike out on their own and creates a family office with a few former colleagues, each coming with unique relationships or skills; one is an expert with ETFs, another has unique views on countries or sectors, another is the best at specific equity momentum strategies… While they are strong in specific areas of their newly created business, they also have to cope with all the time-consuming administrative, compliance and legal requirements involved in running this type of business. They are using all their time to grow the best possible business and create value for their clients, yet they cannot dedicate as much time as they want to the core of their company, which is taking investment decisions and understanding client needs. Ultimately, this is leading to them making fewer well-informed decisions than they would like, which can be frustrating and lead to limitations for their company.

Ideally, all three of these people or companies need quick and reliable access to a vast database of global information, properly sorted and cleaned, as well as a reliable and fairly simple way to analyse that data and make predictions that are more likely to be accurate. This is where access to independent, unbiased data and flexible quantitative indices can make all the difference.

Data – the investor’s best friend

In all three cases above, their issues were resolved, or at least minimised, by the introduction of an independent information management system, like the Quantilia system. On any asset class, these quantitative indices and analysis strategies have, time and again, proven to be of considerable value to investors who wish to make decisions based purely on data. Investors receive unbiased, objective data, statistics and simulation tools  that allow investment managers to make better decisions.

They save time, as all the information gathering is done for them, 24 hours a day; the database is continually maintained and kept clean and up to date; the system even takes on the burden of doing all the necessary calculations, allowing teams and individuals to share input and portfolios in a single, user-friendly interface. Ultimately, this allows institutional investors to manage their funds better, advisors to provide their clients with better information, and wealth managers to enjoy real gains in the previously exclusive investment market.

The key to this kind of system is independence. Because the providers are completely independent of the investor, they are able to remain completely objective, providing a platform that allows everyone, regardless of size, to enjoy access to unbiased, customisable information. This cuts the investor’s reliance on often outdated or inaccurate information, and also frees up more time to focus on choosing the investments that could give them the best possible results.