Client Affairs

Interview: Getting To Know Clients - The Business Of BITA Risk

Tom Burroughes Group Editor London 13 March 2012

Interview: Getting To Know Clients - The Business Of BITA Risk

It is a truism that wealth managers need to get the best possible measure of their clients’ appetite for risk, both to deliver the right products, manage expectations and also stay on the right side of “know your customer” rules and tests of product suitability.

It is frequently stated that wealth managers need to get the best possible measure of their clients’ appetite for risk, both to deliver the right products, manage expectations and also stay on the right side of “know your customer” rules and tests of product suitability. This publication recently interviewed Daryl Roxburgh, global head of the firm, BITA Risk.

By way of background, Roxburgh has held his role since 2003. He started his career as a private client fund manager with Buckmaster & Moore, progressing to general manager of private clients, then IT director for what had become Credit Suisse Asset Management. After 16 years with the group, Roxburgh moved to M&G as a senior consultant and two years later was recruited by Prudential Portfolio Managers as global head of IT. After a period with City Consultants, he joined BITA Risk.

How would you best describe BITA Risk and what it does and where it fits into the wider management industry?

BITA Risk provides a range of private client risk profiling and suitability assessment tools that enable private client investment firms to profile, assess, monitor and report client suitability. Based on sound business understanding these tools are designed to complement the investment and business processes of client firms. Processes vary significantly between firms and BITA Risk has maintained its tradition, established in servicing the institutional investment world, of configuring its applications to the needs of each firm; rather than a one size fits all approach. As investment firms strive to keep abreast of regulatory examination and investors gain a greater awareness of the investment management process, using products that give competence in the sales process, client suitability and understanding, and governance of portfolio suitability can deliver a significant competitive edge. 

How important is the area that BITA Risk works in, and why?

Before the regulators' more recent focus on assessing suitability, BITA Risk believed a common understanding of risk between the client and their investment manager was key to the relationship and managing expectations. Providing an application that delivered this consistently and gave the client insight to the investment risks in an efficient and consistent way would be beneficial for both firm and client. We are now witnessing a clear regulatory demand and appetite for a more rigorous approach to client risk assessment and monitoring; what started as good practice and process has now become mandatory. We believe that transparency and understanding brought about through clear explanation is vital to setting and meeting client expectations. The trend for a more thorough and transparent approach is becoming  global, as regulators adopt common practices and firms see the benefit that this can bring to the sales process.

What sort of forces drive demand for the services BITA Risk provides?

Regulatory change has made the case for a ‘nice to have’, ‘best practice’ process, compelling.  A firm's desire to improve their sales process and ensure consistency of approach and quality and governance processes such as monitoring of portfolios against mandate, has also driven demand. The Treating Customers Fairly (TCF), Assessing Suitability Guidance and the anticipated introduction of the Retail Distribution Review have led to growing compliance scrutiny. Increasingly sophisticated investors are expecting more, all of which are key forces driving the uptake of BITA Risk services and as major firms in different locations adopt our applications it is seen as setting the standard.

What has been the kind of event that has driven demand for BITA Risk's services since its founding?

Given that BITA Risk is now in its 20th year, there have been many events that have driven demand; not all of which have been positive. In the early OO’s the dotcom collapse and 9/11 hit the quant industry hard and a number of teams that we supplied services to disappeared. Individuals who had used our institutional applications began to re-emerge after a period to take up our services again. More recently, periods of market volatility have made private client firms think more about risk monitoring and our services. 

The Suitability Guidance and ‘Dear CEO’ letter issued by the FSA in June 2011 which identified ‘significant and widespread failings’ amongst investment firms as a result of their wealth management review has also meant that a fully rigorous and transparent approach to assessing client risk is becoming a pre-requisite.

What sort of clients do you have?

BITA Risk applications are used in over 100 offices in 14 different countries. BITA Risk’s clients range from family offices and boutique investment houses, through to large wealth management firms and private banks with offices around the world. BITA Risk’s applications are also used by a number of CIO and quant investment teams. 

Broadly, how do BITA Risk's products work?

BITA Risk offers a range of software-based applications that can be applied to the entire investment cycle and help firms develop practical processes for assessing, addressing and managing risk in the private wealth environment.  BITA Risk’s tools help firms educate and work with their clients in appropriate portfolio construction and ensure that the suitability and assessment process is not simply a box-ticking process. The tools are easy to implement and allow for modular elements to be taken by any firm.

What do you think about behavioural economics and the interest around it? How can such insights be applied on the ground?

As with most mainstream approaches that aim to explain market and human behaviour, there is a wealth of academic work and literature supporting and opposing the arguments and as with many approaches, it can add value to understanding when used in the right circumstances. However as in investment and the field of economics there is no single approach that is right to the exclusion of all others. Elements of BITA Risk’s client risk questionnaire can be considered as behavioural but with a strong focus on utility trade-off and always pertinent to the central point of the questionnaire; what is risk and how could if affect the client. This provides the framework for education and informed debate with the client about what risk is and how it could impact them. Abstract questionnaires whether psychometric or behavioural cannot educate the client in risk, nor form the basis of a risk discussion.  Feedback we have received from some client firms is that the client perceives them as trivial without direct relevance to their portfolio and with little or no transparency in connecting their answers to the characteristics of the end investments.

When do you think that the services BITA Risk provides will reach the kind of levels you would be happy with? What sort of growth targets do you have?

BITA Risk has grown rapidly in the UK market and now has key clients in other global financial centres; from this we expect to develop in these regions too. BITA Risk takes a considered approach to growth, ensuring that it maintains it’s highly responsive service and sells its products where there is a good fit with the business requirement rather than aiming for maximum growth rates. We expect to maintain these growth rates with our existing products and enhance it through our continuous product development policy.

Any other comments?

It is currently a very challenging time for the investment management industry as difficult markets combine with increased regulation, and fundamental changes take place in business practices. We aim to enable efficient systematic processes through the use of our applications, helping simplify administration and providing audit trails at one end and highly efficient detailed investment proposals and portfolio risk analysis tools to private client managers at the other end. Ensuring consistency and giving managers freedom within a BITA Risk framework has delivered benefits to firms and clients alike while meeting regulatory challenges.


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