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Deep rooted relationships build client trust

Ten years after the Great Recession roiled world markets, financial advisors still find themselves facing an uphill battle when it comes to earning prospective investors’ trust.

"The industry is better regulated [now] … But these regulations are imposed on the industry. The industry has not done a good job in addressing the issues of conflicts of interest, preferential treatment for institutional investors, lack of transparency in the private equity world, and so on,” said Sheraz Iftikhar, managing partner and cofounder of Arch Global Advisors. “I think the industry needs to be more self-aware of these issues and do some soul-searching if it wants to avoid being spurned again. And I think that’s something the industry really has not paid too much attention to."

Arch Global Advisors, based in Long Island City, New York, provides comprehensive wealth management services to people seeking a customized plan to achieve their financial goals. The firm maintains a $250,000 minimum to sign on, Iftikhar said, adding that prospective clients with that amount of assets can make the most of Arch Global Advisors’ services. The firm expects to become a Registered Investment Advisor (RIA) later this year.

Recent global investor surveys show that retail investors express considerable skepticism toward the financial services industry, although trust levels have ticked up slightly in recent years. The CFA Institute’s 2017 annual survey of investor trust across 12 markets found 46 percent of American respondents believe their financial advisors always put their interests first—a frustratingly low number for many a wealth manager’s taste, certainly, but the U.S. came out above the global average of 35 percent. The numbers are even worse abroad; just 23 percent of Germans reported the same trust level and only 7 percent of Hong Kong investors think their advisor puts them first. Still, the U.S. number, 46 percent, shows the industry has a long way to go in earning back investors’ trust.

Arch Global Advisors pushes back against the industry’s negative image by providing customized solutions tailored to clients’ unique financial goals. The firm works to build strong, lasting relations with investors so that clients can feel reassured that Arch Global Advisors is putting them before the bottom line.

“What we have is a deeply rooted relationship with our clients that gives us an insight into their businesses and the sectors that they’re in and, not only that, but their personal lives,” Iftikhar told “Advisors Magazine” during a recent interview. He added that strong relationships allow Arch Global Advisors to consider client behavior and risk tolerance when developing financial plans.

“The investment philosophy that we’ve created really caters to the risk profile of the client,” Iftikhar said. “A lot of times advisors are focused on the return part of the investment and the clients are also accustomed to the same process because all they hear in the media outlets is return, return, return … What they don’t realize is that risk is an important part of the process. Understanding the risk in my opinion is equally as important as understanding the return.”

Arch Global Advisors thoroughly considers the risk of a given investment and breaks it down for clients so they can make more informed decisions about what goes into their portfolio.

“We’re not just looking at the return when we make investments for our clients, but we’re actually looking at the risk-return ratio when these investments are put into place,” Iftikhar said.

The holistic solutions Iftikhar develops with clients requires him to slowly and deliberately educate investors on the ins and outs of their financial situation. Prospective investors often hesitate to tackle their finances because industry jargon, a proliferation of products, and impenetrable legalese surrounding fee disclosures or regulations all work together to produce an intimidating status quo. Iftikhar works with clients to cut through the jargon and take charge of their financial future.

“We know that everybody will die one day, education is getting more expensive, health care is getting more expensive, how do you prepare for these issues?” Iftikhar said. “We realized early on that educating our clients is a crucial component of creating financial plans. It makes our job easier if our clients are educated because educated clients understand the significance of taking a more proactive role in the process.”

Arch Global Advisors educates clients via seminars and mandatory one-on-one meetings to review financial plans. Iftikhar also has broad-ranging discussions with clients on what they want in life, risk, market volatility, and how legislation—such as the 2017 Tax Cuts and Jobs Act—impacts their financial plan.

Iftikhar also developed a series of seminars for clients from the healthcare, technology, and hospitality industries that offered those professionals field-specific advice for taking charge of their finances. Arch Global Advisors education efforts have not gone unnoticed, with Iftikhar and other members of the team having been featured in national media such as CNBC and Reuters.

Iftikhar also steps away from the traditional, cookie-cutter blend of stocks and bonds most asset managers push on clients. Investing goes “far beyond” that 60-40 percent or 70-30 percent split most investors hold, and Arch Global Advisors looks to bring in alternative investment products such as private equity and real estate to bolster clients’ portfolio resilience where appropriate.

To build a customized, holistic financial plan requires a professional advisor to invest time and energy into cultivating strong client relationships. Iftikhar said that new technological tools – the so-called robo-advisors – can be helpful, but cautions against shoe-horning them into every investment situation.

“We live in a world where Facebook, Amazon, and Google have had a huge impact in our lives,” he said. “When it comes to the financial world, the concept of using algorithms has been around for a long time, but before it was primarily used by institutions and now it’s basically accessible to the average investor.”

The average investor, however, still lacks a team of trained financial analysts and the deep expertise needed to put the algorithm in context. The algorithms are limited by client inputs and the market data that has fed them for the past decade.

“Saying a robo-advisor is a great solution is like saying one-size-fits-all. It may work for some, but it may not work for all. By answering 15 generic questions it’s almost impossible to determine the right investment allocation for an important financial plan,” Iftikhar said.

Robo-advisors also have yet to grapple with a down market. After the Great Recession, markets moved in a single trajectory – up. The last nine or 10 years delivered strong returns to investors, but nothing lasts forever. The algorithms used in the robo-advising platforms have yet to be widely tested against a genuine, as opposed to simulated, down market.

“Because they haven’t been tested, I’m skeptical of how these algorithms will deal with a downtrend market,” Iftikhar said.

Iftikhar founded Arch Global Advisors after a stint in the financial industry left him disillusioned.

“I realized some flaws in their practice and their platform,” he said.

Arch Global Advisors launched in 2007 just as the financial crisis hit, but Iftikhar said this “great timing” allowed the firm to learn from several painful mistakes and emerge stronger. The crisis also required the firm to really focus on careful financial planning, market volatility, and understanding what clients really needed.

“More often than not, the clients’ voice gets subdued in that process,” Iftikhar said, referring to larger financial firms or more traditional advisories.

But, at Arch Global Advisors the client’s voice is heard loud and clear, he said.

“If you ask a client, ‘Imagine your life is perfect in every respect, what would it look like?’ Many clients would be able to answer that question … The only thing they need is help getting to that destination,” Iftikhar said. “A good financial plan is your financial GPS that will navigate you to your destination.”

For more information on Arch Global Advisors, visit: archga.com

 

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