Life after City Index. A close look at the innovative way that Meir Velenski caters specifically for high net worth investors

Meir Velenski is a prominent industry figure.

Articulate and eloquent, he has vast experience in providing innovative solutions for high net worth clients looking to invest great sums into portfolios, managed or self-traded, which are the golden egg of the industry as they often are loyal, well-heeled and not only resolve the issue of cost of acquisition for brokerages, but are educated in the financial markets at such a high level that their volume is valuable to brokerages without the need for much in the way of support or retention.

Mr. Velenski clearly understands how to identify the needs of niche individuals with valuable portfolios, having been Managing Director of City Index in Israel, where he eschewed the digital marketing and mainstream methods of onboarding clients in favor of high touch interaction with middle class, educated semi-professional and professional traders who attended the company’s offices in order to discuss the markets and their portfolios, with a remarkable success rate.

Mr. Velenski has now moved on to take this niche further, having established his own boutique brokerage for high net worth investors, and today met with FinanceFeeds in order to explain the ethos of Velenski Financial Group, the company headed by Mr. Velenski which was originally established in England in 1998 and has now branched into Israel with an office having been opened in October this year.

“We have 98 high net worth clients in total. Our definition of high net worth is someone with over $100,000 in their account, whether in liquid cash or in securities and investments. We look at each client on an individual basis and sometimes charge fees, whereas occasionally we charge commission for our services” explained Mr. Velenski.

“Based on 98 clients with $100,000, it would appear that the entire amount of assets under management in their accounts would equate to almost a 10 million but in reality the actual assets under management thus far amounts to $4.8 million in total due to varying client requirement” said Mr. Velenski.

How does it work?

Mr. Velenski explained the ethos behind his methodology “When we place business on behalf of high net worth customers, it is also placed through stock brokers and is not all CFD business. Some of it is purchased assets and therefore our business model is not purely related to assets under management.”

“We do not just put all of the clients’ portfolios into spread betting, instead only part of a portfolio is leveraged under spreadbetting. If, for example, someone comes with $500,000 we will put $100,000 in the CFD account to buy the same value in stocks, and then we then release some of their equity portfolio in terms of cash so that they dont have to commit $500,000 to the market. This mitigates risk and ensures good prospective profits without the possibility of being stopped out by a broker if market conditions create too much volatility.”

“To put this into context, let’s say a client approaches us and has $500,000 in BP stock, then we will take a look at their options, and would potentially advise the client that they should take some of their capital out of this without compromising their portfolio and potential return, therefore we buy the equivalent $500,000 in stocks in other companies and release some of their equity.”

“A practical example of this is that if the client has 10,000 shares in BP, and BP today costs around £3.59 per share, then the client has £35,900 worth of stock. He then comes to us and says Meir, I want to release some money from my portfolio but still want to hold 10,000 shares.”

“We then get him 10,000 shares on a CFD basis but he only has to put in £3590 because it is leveraged. Therefore, £3590 is what equity he needs to support the purchase of going long on 10,000 BP shares, but client still has a notional value of £35,900.

What happens if the shares go down?

Mr. Velenski explained the risk management advantage of this “If the shares go down to £1, for example, the value of the stock then becomes 10,000 and the client would have lost 25,900 on paper under an arrangement where the client holds the shares.”

“Under a traditional CFD account with a brokerage, the client would be closed out because he would not have enough margin with only £3590 there, so what does Velenski Financial Group do? Because we work on behalf of the clients, we don’t let them use margin to get into a situation where they are in negative equity or have closed out all of their investment should the market not go in their favor” he said.

“Instead, we allow clients to release cash from their original figure, whilst leaving enough capital in their account to cover margin. This works well because in circumstances like my example with BP shares, the chances of a very sharp decrease in value are very remote, even most fund managers would look to get out of their trades if they dropped to a low level” said Mr. Velenski.

“We work on the basis of on average maintaining a 75% equity, and 25% withdrawal of client funds. This allows enough meat on the bones to ensure that trades will not be closed out, and we certainly know that most CFD firms love a close out because this is where the revenue is. People have got locked-in portfolios and the money is sitting there tied up” – Meir Velenski, CEO, Velenski Financial Group.

Mr. Velenski stated that “We are mostly working with private bankers and high net worth individuals who have all got a variety of mixed asset portfolios including property as well as equity portfolios that have their funds locked. Most retail equity markets are based on physically holding stock, therefore there are billions of locked up assets holding physical stock.”

In conclusion, Mr. Velenski explained that his model is the key to the ongoing growth to the CFD and spread betting market. “If you are a CFD firm and you take the digital marketing approach, you’ll get a lot of expensive turn over of clients and the accounts will be short term $1,000 efforts. The key is to bring on board and look after high net worth clients via good quality service and products.”

“The theme here is to ask yourself where clients want to be as an investor. Mostly, we find that they want to be releasing locked cash back into the market, and most people in the UK that I can vouch for have got assets that are locked away and if we can get these to work better, then I will be much happier.”

The spread betting world has traditionally wanted investors to buy not 10,000 shares and retain some capital, but 100,000 shares on a non-leveraged basis and take the whole £35,900 and then use up the entire investment.”

Photography at Velenski Financial Group’s Head Office in Israel. Copyright Andrew Saks-McLeod