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:
π¦ Where Are Clientsβ Funds Held? Firstly, itβs vital to understand that clientsβ funds are never directly held by the wealth manager. They are deposited with a meticulously selected custodian bank. This important fact means that itβs not the financial soundness of the wealth manager that should be our primary concern but that of the custodian bank.
π Whatβs on the Bankβs Balance Sheet? Even while the bankβs finances are important, itβs noteworthy that securities are held off the bankβs balance sheet. Only cash balances are genuinely on the bankβs balance sheet. With more significant liquidity positions, itβs recommended to diversify cash positions by using money markets, call/time deposits or ultra-short-term bond funds. Itβs crucial to recognise that, for instance, only amounts up to CHF 100,000 are insured.
β 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, while the balance sheet of an independent wealth manager may seem like an essential indicator at first glance, a closer examination reveals many other, far more pertinent factors that should be considered when evaluating the safety and reliability of a wealth manager.
Source: LinkedIn
