It is a truism that wealth managers need to get the best possible measure of their clients’ appetite for risk, both to deliver the right products, manage expectations and also stay on the right side of “know your customer” rules and tests of product suitability.
It is frequently stated that wealth managers need to get the
possible measure of their clients’ appetite for risk, both to deliver the right
products, manage expectations and also stay on the right side of “know your
customer” rules and tests of product suitability. This publication recently
interviewed Daryl Roxburgh, global head of the firm, BITA Risk.
By way of background, Roxburgh has held his role since 2003.
He started his career as a private client fund manager with Buckmaster &
Moore, progressing to general manager of private clients, then IT director for
what had become Credit Suisse Asset Management. After 16 years with the group,
Roxburgh moved to M&G as a senior consultant and two years later was
recruited by Prudential Portfolio Managers as global head of IT. After a period
with City Consultants, he joined BITA Risk.
How would you best
describe BITA Risk and what it does and where it fits into the wider management
BITA Risk provides a range of private client risk profiling
and suitability assessment tools that enable private client investment firms to
profile, assess, monitor and report client suitability. Based on sound business
understanding these tools are designed to complement the investment and
business processes of client firms. Processes vary significantly between firms
and BITA Risk has maintained its tradition, established in servicing the
institutional investment world, of configuring its applications to the needs of
each firm; rather than a one size fits all approach. As investment firms strive
to keep abreast of regulatory examination and investors gain a greater
awareness of the investment management process, using products that give
competence in the sales process, client suitability and understanding, and
governance of portfolio suitability can deliver a significant competitive
How important is the
area that BITA Risk works in, and why?
Before the regulators' more recent focus on assessing
suitability, BITA Risk believed a common understanding of risk between the
client and their investment manager was key to the relationship and managing
expectations. Providing an application that delivered this consistently and
gave the client insight to the investment risks in an efficient and consistent
way would be beneficial for both firm and client. We are now witnessing a clear
regulatory demand and appetite for a more rigorous approach to client risk
assessment and monitoring; what started as good practice and process has now
become mandatory. We believe that transparency and understanding brought about
through clear explanation is vital to setting and meeting client expectations.
The trend for a more thorough and transparent approach is becoming global, as regulators adopt common practices
and firms see the benefit that this can bring to the sales process.
What sort of forces drive
demand for the services BITA Risk provides?
Regulatory change has made the case for a ‘nice to have’,
‘best practice’ process, compelling. A
firm's desire to improve their sales process and ensure consistency of approach
and quality and governance processes such as monitoring of portfolios against
mandate, has also driven demand. The Treating Customers Fairly (TCF), Assessing
Suitability Guidance and the anticipated introduction of the Retail
Distribution Review have led to growing compliance scrutiny. Increasingly
sophisticated investors are expecting more, all of which are key forces driving
the uptake of BITA Risk services and as major firms in different locations adopt
our applications it is seen as setting the standard.
What has been the
kind of event that has driven demand for BITA Risk's services since its
Given that BITA Risk is now in its 20th year, there have
been many events that have driven demand; not all of which have been positive.
In the early OO’s the dotcom collapse and 9/11 hit the quant industry hard and a
number of teams that we supplied services to disappeared. Individuals who had
used our institutional applications began to re-emerge after a period to take
up our services again. More recently, periods of market volatility have made
private client firms think more about risk monitoring and our services.
The Suitability Guidance and ‘Dear CEO’ letter issued by the
FSA in June 2011 which identified ‘significant and widespread failings’ amongst
investment firms as a result of their wealth management review has also meant
that a fully rigorous and transparent approach to assessing client risk is
becoming a pre-requisite.
What sort of clients
do you have?
BITA Risk applications are used in over 100 offices in 14
different countries. BITA Risk’s clients range from family offices and boutique
investment houses, through to large wealth management firms and private banks
with offices around the world. BITA Risk’s applications are also used by a
number of CIO and quant investment teams.
Broadly, how do BITA
Risk's products work?
BITA Risk offers a range of software-based applications that
can be applied to the entire investment cycle and help firms develop practical
processes for assessing, addressing and managing risk in the private wealth
environment. BITA Risk’s tools help
firms educate and work with their clients in appropriate portfolio construction
and ensure that the suitability and assessment process is not simply a
box-ticking process. The tools are easy to implement and allow for modular
elements to be taken by any firm.
What do you think about behavioural economics and the
interest around it? How can such insights be applied on the ground?
As with most mainstream approaches that aim to explain
market and human behaviour, there is a wealth of academic work and literature
supporting and opposing the arguments and as with many approaches, it can add
value to understanding when used in the right circumstances. However as in
investment and the field of economics there is no single approach that is right
to the exclusion of all others. Elements of BITA Risk’s client risk
questionnaire can be considered as behavioural but with a strong focus on
utility trade-off and always pertinent to the central point of the
questionnaire; what is risk and how could if affect the client. This provides
the framework for education and informed debate with the client about what risk
is and how it could impact them. Abstract questionnaires whether psychometric
or behavioural cannot educate the client in risk, nor form the basis of a risk
discussion. Feedback we have received
from some client firms is that the client perceives them as trivial without
direct relevance to their portfolio and with little or no transparency in
connecting their answers to the characteristics of the end investments.
When do you think
that the services BITA Risk provides will reach the kind of levels you would be
happy with? What sort of growth targets do you have?
BITA Risk has grown rapidly in the UK market and
now has key clients in other global financial centres; from this we expect to
develop in these regions too. BITA Risk takes a considered approach to growth,
ensuring that it maintains it’s highly responsive service and sells its
products where there is a good fit with the business requirement rather than
aiming for maximum growth rates. We expect to maintain these growth rates with
our existing products and enhance it through our continuous product development
Any other comments?
It is currently a very challenging time for the investment
management industry as difficult markets combine with increased regulation, and
fundamental changes take place in business practices. We aim to enable
efficient systematic processes through the use of our applications, helping
simplify administration and providing audit trails at one end and highly
efficient detailed investment proposals and portfolio risk analysis tools to
private client managers at the other end. Ensuring consistency and giving
managers freedom within a BITA Risk framework has delivered benefits to firms
and clients alike while meeting regulatory challenges.