FTDO: A Priority for 2023: Considering Discretionary. Fiduciary. Advisory. vs. Brokerage.

Summary:  Banks have a range of options today that were not prevalent just a decade ago -- especially when it comes to their important Securities Portfolio which now typically account for about 25% of the average banks asset mix. For banks whose securities portfolio is greater than 25% of assets the options can become even more important.

Certainly not necessarily appropriate for everyone, but the broader industry is certainly seeing the advantages of Fiduciary, Advisory, and even Discretionary relationships in addition to, or even over Brokerage relationships. Each in their own way, allowing bankers to focus more directly on growing their bank, making better loans, and improving their operational efficiency.

We are not saying that one is better than the other. But we are saying that it behooves banks to do a deep dive into advantages and disadvantages of each. For instance, a discretionary manager can offer full transparency and a real-time overview of a client's investment picture. A discretionary manager is able to make rapid adjustments to a client's portfolio in the event of market shifts, while allowing clients to concentrate on their day-to-day business. At the other extreme is the more transactional nature of a commission-based brokerage relationship -- somewhere in the middle, with a wider range, are various Advisory and Fiduciary relationships to explore.

Generally, portfolio management is founded on eight common principles that help drive balance sheet optimization and balance liquidity needs for any given bank:

  • Dynamic Asset Allocation -- the core driver of your portfolio’s performance returns is a driven set of asset allocation choices.
  • Time management -- this will allow you to focus on your core banking business services (lending, fees, and community support).
  • Rigorous rebalancing -- your portfolio should benefit from a disciplined process of rebalancing, intending to optimize long-term risk and returns.
  • Risk management -- central to investment philosophy should be putting controls in place so that activities undertaken in your portfolio is within your risk tolerance.
  • Cost efficiency -- a consistent focus (and refocus) on negotiating the most competitive fees, transaction and oversight costs, among other oversight costs.
  • Proven based track record, FinTech, and machine-learning support -- SB Value uses about 20 years of data, along with hundreds of thousands data points, devising a current portfolio allocation.
  • Reinventing the wheel is not necessary -- follow what the most successful banking institutions have done in the past and incorporate and implement components of their strategies into yours going forward.
  • Success habits and forward insight -- don’t underestimate successful habits and their power to transfer forward as we have found the most successful banks operate differently.

What's important is that you consider exploring the considerable value often created when a bank takes advantage of an Advisory relationship either in addition to current brokerage relationships or in replace off. Just in the last few years SB Value has identified over $100 million in savings opportunities for select community banks. You, like most, will likely be amazed at what you uncover for your institution.

To better understand some of the base advantages and drawbacks to using Fiduciaries vs. Brokerage relationships, a great summary article can be found here.

Start your exploration and understanding with four great tools that will help inform the bank in many ways as to optimize your balance sheet and better balance liquidity needs.

  • Get your free Portfolio Transparency Analysis to uncover savings & learnings
  • See what difference active monthly risk monitoring looks and feels like -- ask for a free Fixed Income Risk Monitor (FIRM) report of your Municipal and MBS/Agencies portfolios
  • See the strategic and planning value that a free Top-20% Analysis of your portfolio looks like for 2023 planning
  • A free IPS (Investment Policy Statement) Review as much has changed in the last three years, and todays environment may warrant some adaptation to position the bank for the next few years

An approach to consider. While managing your investments is a top priority, it may require more time and attention than your busy schedule permits. At SB Value, both our Advisory Transparency Platform and Discretionary Portfolio Management are precisely designed to address this, among other, situations like investors who desire greater peace of mind, an active partner, and the time to focus on other priorities at the bank than can drive more to the bottom line if tunes properly. Some day in the future you can even hand over day-to-day investment responsibility to us, whilst retaining an element of control over the parameters of the mandate. You decide what level of efficient and effective support is best for your bank.

Old (Current) vs. New (Newer) -- there is an old way that has proven cumbersome and is rapidly showing its inefficiencies as balance sheet optimization becomes an ever-increasing priority. There are new ways that quite possibly could be a part of transforming the speed, flexibility, oversight, and economies of portfolio oversight and management. This is an easy one to put into the mix. At SB Value, we do most of the upfront work to give you the understanding you need to make better informed decisions -- let us show you how for free with four comprehensive analyses that will inform your future.

Consider SB Value Partners. At least look under the hood and kick the tires.

We’ve been supporting community financial institutions for almost 30 years. We tend to save our clients a significant amount of money, help them make better trades (through their current relationships), provide better portfolio transparency, provide aggregated risk tools, in-parallel analytics reporting and bond reporting, through seasoned traders and analytics, among other things. We think that you will be impressed by insights coming directly from an institutional trading desk.

Complementary is great value. Take advantage of it.

At SB Value, we are fiduciaries. Fiduciaries are bound to do what is best for their clients. It really does not get more straight forward than that. We demonstrate to our prospects our value up front with live analysis of their portfolio from many different angles. Take advantage of our SB Value Portfolio Analyses and look to better meet Dodd-Frank and the OCC guidance while striving to improve your performance.

As always, consider a first, second, or even third opinion from SB Value Partners by eMailing or calling us back today. Let SB Value help you examine all these, and other methodologies, to build out your future pathways to optimizing your success.

Questions? ASK US HOW to start a complementary analysis now. It’s a great time to get some additional clarity. Learn some additional truths on the front end. It may position your bank for added improvements into 2023 and into a better positioning for 2024. Listen to what a few thought leaders have to say who have written white papers on the topics at hand. Take a read through a few Fact Sheets and SME articles on the subject that we would be happy to provide.

As fiduciaries we see quite a lot – in fact we have recently reviewed just under 17,000 data points from Community Financial Institutions – likely just like yours. We look forward to sharing with you some of what we have learned over the last three decades. In the meantime, we thought we would help with some general information that you and your team can consider right away to round out what you are already doing. There is a lot that’s beneficial, starting with cost savings, yield improvements, potential risk reduction, and likely better balance – even protection. To find out more please click here or go to our website.