Modern portfolio theory, client risk assessments and standard statistically based asset allocation models and optimisation techniques were among a few investment sacred cows injured, if not killed, by Jean Brunel at the Marcus Evans Elite Private Wealth Management Summit held in Montreux recently.

Brunel, managing principal of the eponymous firm Brunel Associates, said modern portfolio theory is flawed and that the on-shore/offshore debate in the industry is pretty much dead.

“Taxation is becoming part of the wealth management planning process,” he said, while complaining that there has been a lack of creativity in such tax planning. “Where is the focus on derivatives and sharper use of synthetics (for US clients in particular)?” he asked.

The summit, at which Brunel spoke, is in its fourth year, and brings together investors and providers to discuss trends in the wealth management industry and to network in one of the more agreeable locations in Switzerland.

Brunel’s nine-year-old firm offers wealth management consulting services to ultra-affluent individuals. He founded the company in 2001 after a long career with JP Morgan and US Bancorp.

Echoing the strap line of the Private Banking division of a well known UK bank, he suggested that the first question to ask clients is “What do they want from their wealth?” Furthermore he believes that he has received a perfect answer from one client – “Not having to change my lifestyle”. It's not a numbers game of who is worth most when you analyse it Brunel says, “It is what the money can do for you that matters.”

He is adamant in stating that modern portfolio theory is flawed. Rather than the techniques of modern portfolio theory, Brunel is an advocate of what he refers to as “goal-based allocation” while noting that individuals are “path dependent” which is a behavioural psychologists’ way of saying that perception of the present is based on past experience as much as current reality. Those who have just lost money are more risk averse than those who have just made money in the same market environment.

When a person defines their goals for such areas as current income, inheritance and philanthropic giving, for example, a client has to allocate resources and risk profiles to each activity. It is not one-size-fits-all.

Using optimising software tends to produce the results investors want rather than those best for the client. It is not that the efficient frontier does not exist, it is that any client has a variety of them dependent on what they are thinking about at a particular time.

Modern families need to define their financial goals and add to them their values for a greater good (SRI for example) and family values as to what they will not invest in. After these two phases have been completed then a set of portfolios can be constructed to meet the true aspirational needs of a client and their family.

Well this approach is different to that embodied in the stock question, “What is your risk profile?”

Then again, given that most relationship managers identify “managing client relationships” as the area in which they most need training, it may be that a more client centric approach that seeks to discover what they want from their money is the way forward. The conference delegates certainly seemed to warm to the concept.