Why High Net Worth Individuals Choose Forex – Guest Editorial
Michael Buchbinder, Managing Partner at Scandinavian Capital Markets looks at how important FX is to wealth managers and high net worth traders, and speaks in detail to one of Canada’s asset managers on why wealthy investors like FX as an alternative asset class
By Michael Buchbinder, Partner, Scandinavian Capital Markets
A retail trader looks for everything they’ve been told to look for by the marketing team of the brokerage. No spreads and No commission trading. No latency.
A professional trader looks for great service and a reputable firm, so they know who they are working with, they feel comfortable they will be able to withdraw their funds and their profits. Pro traders want to know their money is safe and they can take it out without any problems, quick and easy.
Fair and transparent trading costs. These traders know there is a cost of trading. No brokerage is in the business for charity, they are in business to make profit. That is why the pro traders want to know their cost of trading. They are happy to pay a fair price to get fair access to the market.
Michael Buchbinder speaks to FinanceFeeds in London, May 2019
That means the broker should not manipulate their orders, slow their orders down, and most certainly should have depth of liquidity to make sure their orders get executed.
Depth of market is a term that relates to a market that has enough liquidity to execute the size of their orders. When pro traders enter the market they go in with $5, $10, $20, $50, $100 Million at a time. These traders care about getting their huge orders filled as close to their requested price as possible before the market moves.
This contrasts to a retail trader receiving retail conditions. They fall prey to the marketing offering no fees, best technology, and great execution. when in fact they fail in all of these areas. No commission and No spreads usually mean that the price you want to enter the trade normally never gets hit. You more often than not get the worst pricing possible.
Then they offer the same technology as everyone else. There is no advantage to the technology, especially when there is no transparency in fees and pricing. Usually you are being executed against in a dark pool.
Thus leading to lower liquidity and depth of market. With retail brokers they have very little top of book liquidity. If you want to buy 10 lots equivalent to $1 million on the open market, their pricing is usually only as deep as $300k if lucky so the price you recieve on the full $1million order is far worse than the price you clicked on.
Scandinavian Capital Markets is fortunate to work with fantastic individuals around the globe, and as part of our Valhalla Experience program in which we make extensive efforts to physically meet our clients and spend time understanding their business to help tailor our service to their needs, I often have the great privelege of meeting some very high quality professionals who are not only very skilled but also highly committed to their trading, be it on a proprietary basis or on behalf of their own clients.
One asset manager that I think is worthy of note is Daniel Hunter. Based out of Toronto, Canada, Daniel advises high net worth individuals. We spoke to Daniel at length about the needs of high net worth individuals and in particular, Forex as an alternative class of investment.
Daniel was introduced to Scandinavian Capital Markets three years ago by a colleague in Central America, and has worked with the us for a good execution solution for high net worth clients.
Starting back early in his career in the 1990s, Daniel has been an advocate of alternative asset classes. Now those can vary. It can be anything from hard commodities to anything. It can be art. It can be wine, and of course FX.
Daniel told us “My career spans back 20 plus years starting with Royal Trust, which was in Canada one of the premier trust companies handling trust and asset management for high net worth individuals both in Canada and internationally. We were bought by RBC Global, and that led me to a career around the world dealing primarily in advisory and asset management.”
“Although I have the asset management experience, I’ve been in the business development side working alongside some of the top managers globally, both with RBC and EFG international. I started my career, then, with my own business and aligned with Scandinavian Capital Markets 2 years ago and have started to on-board high net worth individuals to the platform in Sweden which has been wonderful” he said.
“The average client that I’ve worked with, going back to the beginning of my career, has been a high net worth individual” said Daniel.
“However, that’s changed over the years. Now a high net worth individual is typically worth $1,000,000 plus with investable assets going up to billions with family offices that I work with both here and offshore” he explained.
“The main thing I can stress is that these types of clients are not necessarily interested only in returns of investment. They are interested in something more than just a profit” said Daniel.
“They have wealth. They are already wealthy. They typically want to deal with someone they trust, where there’s transparency in the platform, and ultimately, of course, performance and servicing. I mean, at the end of the day they want to be serviced by top professionals. Additionally, today the level of technology that we deal with gives benefits to all because it allows to access clients globally, communicate and report instantly” explained Daniel.
“High net worth individuals are sophisticated, they’re typically running other businesses where they’ve made their profits and their wealth” he said.
Daniel quite rightly believes that when the trust is aligned, we make the decisions – as long as it’s a very disciplined model with not a lot of leverage, there’s not a lot of upheaval and big swings because, as I say, the clients are not trying to hit the ball out of the park. They’re looking for consistency.
High net worth people, according to Daniel, don’t want the downside. They don’t want big losses. They’re experienced.
“They look to us for providing access to what I call alternative asset classes. Clients clearly value trust and personal relationships. They want to lower portfolio volatility with a solid asset manager” he said.
So, where does Forex fit in here?
“You know, there’s all sorts of things that can be added into a portfolio for a high net worth individual that conserve and grow capital. The equity and bond markets and cash have been traditional. But, they’re facing a lot of upheaval right now with the way the world is” he said.
“With the inclusion of a properly managed foreign exchange portfolio and other asset classes, as I mentioned previously… I think that just expands and preserves the high net worth individuals’ wealth. It expands their wealth, and they see better returns overall” he said.
“But it typically has to be an inclusion of all asset classes for diversification. Anybody that’s just out selling a product to make profit, which includes the bank, isn’t properly assessing and advising their clients” said Daniel.
In summary, the more support that can be given to high net worth clients, the more sustainable the brokerage industry can be. It should be about quality, and investment of time and effort into aligning with that quality rather than doing the numbers game.
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