In the realm of wealth management, there are numerous misconceptions, especially regarding the topic of the balance sheet of an independent wealth manager. Here are some clarifications:
🏦 Where Are Clients’ Funds Held?
Firstly, it’s vital to understand that clients’ funds are never directly held by the wealth manager. They are deposited with a meticulously selected custodian bank. This important fact means that the financial soundness of the custodian bank should be our primary concern, not that of the wealth manager.
📊 What’s on the Bank’s Balance Sheet?
While the bank’s finances are essential, it’s noteworthy that securities are held off the bank’s balance sheet. Only cash balances are genuinely on the bank’s balance sheet. With more significant liquidity positions, it’s recommended to diversify cash positions by using money markets, call/time deposits, or ultra-short-term bond funds. It’s crucial to recognise that, for instance, only amounts up to CHF 100,000 are insured.
❗ What Happens in the Worst Case?
A trading error occurs. Most wealth managers have proactively secured Professional Indemnity Insurance (PII). The coverage volume of these insurance policies is usually much higher than one might anticipate from a wealth manager’s balance sheet.
In conclusion, an independent wealth manager’s balance sheet might initially seem important. However, many other crucial factors are more critical in evaluating its safety and reliability.
Source: LinkedIn
