Wealthy individuals and their advisors must realise that volatility is not the same as risk and accept that some market gyrations are a price worth paying if it means avoiding permanent losses in the long run, according to Presidio Group.
It is a mistake for advisors – or their clients – to confuse volatility with risk, although this is a common assumption, Mark Palmer, managing director and head of wealth advisory at Presidio Group, told this publication during an interview at his offices in San Francisco.
“We have done a poor job as an industry in explaining to people what risk is – it is the risk of permanent loss of capital. People may have to take on more volatility to reduce risk of such a permanent loss,” Palmer, who has been at the firm for two years, said.
He also noted that there is a lot that wealth managers can learn from the endowment and retirement sectors in terms of how to think about long-term asset allocation, risk management and wealth structuring.
“There is no reason that a large family shouldn’t get the same approach that an endowment gets, albeit tailored to their own needs,” Palmer continued.
He warmed to the theme that the long-term perspective of clients in family offices and similar institutions has a great deal in common – with some caveats – with the retirement fund sector, for example. There is a need for more sharing of views and insights between such organisations, he said.