tetralog Zoom: Holistic View and Impact Analysis

tetralog Zoom aggregates portfolios under management in a Risk/Return view based on single ISINs.

Zooming out gives a holistic and clustered view. Zooming in on a single portfolio lets analyze its detailed composition. Massive data sets can be filtered, analyzed – impact scenarios can be simulated for hidden business potential, compliancy risks or other perspectives.

Zoom analytics literally zoom into individual portfolios and out to see all assets under management.

Sample cases are based on data from 5000 real portfolios.

  • Each dot represents a client portfolio.
  • Average portfolio volume: € 250k
  • Total assets under mgt. (AuM): € 1.25bn

Risk/Performance position calculated for single ISINs using the high-resolution TED financial product data series on an 8 year price history.

tetralog Zoom helps answering vital questions:

Regulatory Compliance

Identify Portfolio Allocations
»How does our advice result in customer portfolios?«
Risk Assessment: see Fit/Misfit between client profile and portfolio to assess litigation potential
»Do our advisory results meet regulatory intentions?«
»Are client portfolios positioned in their true risk classes?«
»What is the business potential of a reallocation?«
Litigation Avoidance: Identify Deviations
»Can we safeguard advisors against legal sanctions?«
»Are there structural or systematic deviations in portfolio positioning?«

Business Development

Validation of new products
»How do new products fit into our product range?«
»How would client portfolios be impacted?«
Scenario Stress Tests
»How are client portfolios affected if a macroeconomic scenario realizes?«
Product Management
»How are client portfolios affected if model baskets are modified?«
»How many funds are sufficient to meet client needs?«

Similar to other countries, the German regulator BaFin sets a strong mandate:

»(…) investment recommendation has to benefit and match client interests … (banks have to) install internal controls and (…) prevent conflicts of interest.«

Currently and with conventional methods in place, neither the investor protection system nor banks can offer full transparency to clients after the initial advisory contract has been closed.

Conflicting motifs are hard to overcome with conventional methods

Advisors and Sales Reps: Avoid recommending products outside clients interest.

Bank: Ensure proper advisor support to avoid mistakes.

Trade Unions: Object to advisor performance measurement.

Bank Revision/Compliance Management: Ensure rules and guidance is realized

Zoom defines the individual business potential of competent advice that leads to a documented alignment of interests between bank and customer.

Zoom bridges initial risk profiling and ongoing advisory. This allows to leverage the recurring potential of portfolio optimization and transparently.

Zoom integrates different perspectives into a holistic view and can harmonize needs of clients, banks and advisory staff.

Zoom identifies Inacceptable Risks

Identify high-risk portfolios to mitigate liability risks and assess litigation potential.

  • Select all portfolios with an inacceptable risk of >25% p.a.
  • 324 identified portfolios represent a value of €81.5m

For the realistic sample portfolio data, allocating these outliers back to the bank’ acceptable risk corridor < 25% p.a. bears around €700k in business potential with fees averaged at 2.5%

tetralog Zoom allows to quickly filter out portfolios with inacceptable risk.

Zoom identifies client portfolios positioned outside their true risk class

Are client portfolios positioned in their true risk classes?

For this case, filter risk class 3 portfolios, then assess the true risk positioning.

Besides realizing the contractual client intention, the business potential of a legit reallocation can be extrapolated.

  • green is correctly allocated portfolios: a client risk profile is measured as risk class 3 and the client portfolio is allocated in the right risk class
  • blue (~€60m) should be in class 3 but is allocated too conservatively, yielding a lower performance than intended.
  • red (~€27m) portfolios should be in class 3 but are allocated by far riskier than their true, measured risk profile.

Blue and red portfolios should be reallocated to mitigate compliancy issues and meet client interests.

Blue portfolios equivalent a business potential of €525k, red portfolios bear a business potential of €236k, again with fees averaged at 2.5%.

tetralog Zoom supports to identify client portfolios that are outside the clients assigned risk class.

Product Management: Validation of New Products

Impact analysis tests how existing client portfolios’ risk/performance is affected by a new product.

Parameters for this case: Select portfolios if investment of 20% of the portfolio volume in the new product leads to a risk reduction of more than 5%.

What impact would a new fund have?

Result for clients: 524 portfolios with a risk reduction of at least 5%. Switching volume is about €46mn.

Fund provider can assess his listing fee on that basis.

Results: €46mn x 2.5% frontload = €660k business potential of including the new fund.

What is the impact of reducing the product range?

44 funds suffice to serve 95% of clients. That is approx. 50% of todays fund range. Half of the funds result in a 2x volume increase per fund, bank steps up from 0.50% to the next provision level of 0.55%.

Results: Based on the 5.000 clients reflecting €3.2bn, bank reaches the next provision level with remaining fund managers, resulting in €1.6mn more profit.

tetralog Zoom supports to evaluate the effect of new product on existing client portfolios.

Identify Policy Deviations to Avoid Litigation Risk

Focusing on advisors, tetralog Zoom provides immediate guidance:

  • Are advisory policies embraced?
  • Are there compliance risks to mitigate?
  • How can advisors be supported and protected?

Are there structural or systematic deviations in portfolio positioning?

The method here is to select risk class 3 clients, filter by advisor and see how their portfolios are actually positioned.

Result suggests that, compared to peers, “advisor 10” has a high proportion of client portfolios that are either below or beyond the targeted risk class 3. This situation suggests further inquiry and mitigation.

tetralog Zoom supports to identify structural or systematic deviations in portfolio allocations.

Run a trial!

You deliver a reasonably large portfolio sample as a pseudonymized database dump.

  • Required data fields per data set are Portfolio ID, ISIN, Asset Class, Value and assigned client risk class.
  • Some administrative data is needed to produce guidance: Risk Corridors, Model Allocations
  • Optional data fields are instrument type, advisor ID (for structural deviation analytics).

tetralog then processes, normalizes and analyzes the data.

We jointly define scope and required scenarios.

Shortly thereafter, tetralog delivers answers from a range of insights zooming in/out the banks portfolio universe:

  • Risk/Return or any other feasible perspective
  • risk being calculated on single-ISINs and based on an 8-year volatility row using the tetralog TED financial data feed.
  • return calculated as an average return model
  • Re-Allocation potential

Next Steps:

  • Risk/Return optimization on filtered portfolios including preferred products
  • Analysis and optimization of model baskets
  • Evaluate monitoring opportunities
Run a trial!