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:
๐ฆ Where Are Clientsโ Funds Held?
Firstly, itโs vital to understand that clientsโ funds are never directly held by the wealth manager. They are deposited with a meticulously selected custodian bank. This important fact means that itโs not the financial soundness of the wealth manager that should be our primary concern but that of the custodian bank.
๐ Whatโs on the Bankโs Balance Sheet?
While the bankโs finances are important, itโs noteworthy that securities are held off the bankโs balance sheet. Only cash balances are genuinely on the bankโs balance sheet. With more significant liquidity positions, itโs recommended to diversify cash positions by using money markets, call/time deposits, or ultra-short-term bond funds. Itโs crucial to recognise that, for instance, only amounts up to CHF 100,000 are insured.
โ What Happens in the Worst Case?
A trading error occurs. Most wealth managers have proactively secured a Professional Indemnity Insurance (PII). The coverage volume of these insurance policies is usually much higher than one might anticipate from the balance sheet of a wealth manager.
In conclusion, an independent wealth managerโs balance sheet might seem important at first. However, many other crucial factors play a bigger role in evaluating its safety and reliability.
Source: LinkedIn
