In search of high quality funds

Jiang, Z.M. (2009) In search of high quality funds.

Abstract:This research was conducted at Investment Products department (IPD) of ABN AMRO business unit the Netherlands (BUNL). One of IPD’s responsibilities is to offer an attractive assortment of investment products to the retail clients. The idea is that this will result in a higher service level. But the IPD acknowledged that there were some shortfalls in offering an attractive assortment due to the lack of insights in the assortment. Therefore, this research explains 2 approaches on how IPD can offer its assortment to the clients. The first one is through the transaction proposals given to the clients, to switch from one fund to another that will give them in the bank’s opinion a better performance outlook and/or risk spread. The second one is through the ABN AMRO Internal Market Funds (AIMF), which consists of around 300 funds. The clients do not have to pay custody fee, and also get a reduction in the transaction costs. The scope of this research is to analyze the process of transaction proposals which results in recommendations, and to construct an information system tool “Funds-Tool”, to give more insights in the assortment of the AIMF. The transaction proposal Through individual interviews with the stakeholders, the process was mapped out. There were two different procedures to generate transaction proposals: from the Investment-Desk and from the Investment Advisory Center (IAC). Next, a SWOT analysis was conducted and the following weaknesses were identified:  The client-advisors are not using the transaction proposals proactively to their clients.  IAC has not enough capacity to check the suggestions sent by the Investment-Desk adequately on short notice.  The time to market for the transaction proposals from IAC is too long.  The Investment-Desk does not have access to the information it need to check whether a fund is commercially attractive. Next, the evaluation perspectives were derived from what the stakeholders see as desired situation and literature about the quality of process and the quality of advice:  Advice should come from the department with most experienced and knowledgeable specialists.  All the client-advisors should analyze their clients’ portfolio in order to see whether the client qualifies for a certain transaction proposal.  Monitor the quality of the process.  Process-based organization.  Client orientation.  The information ownership and stewardship responsibilities should be assigned to key executives. Furthermore, the following recommendations were proposed based on the SWOT analysis and the evaluation by the perspectives:  Analyze how to increase the commitment of client-advisors to the transaction proposals.  The AA Advisors are the most experienced and knowledgeable specialists for investment funds within ABN AMRO. Thus, we recommend to incorporate the AA Advisors in the process.  Incorporate IPD in the process.  Monitor the performance of funds proposed in the transaction proposal.  Reorganize the process where all the steps in the process have added value for the client; the process should have a clear initiation and end point; information ownership and stewardship responsibilities should be assigned to key executives. We suggest the optimal process given in the next paragraph. Page 3 of 48 Based on the recommendations, we suggest the following optimal process, which should always include the IAC, AA Advisors and the IPD. First, the IAC checks whether the proposal is in accordance with its investment policy. Then AA Advisors select the best funds. Next, IPD checks whether the funds is in accordance with its assortment management. Furthermore, the initiation point should be triggered by the department with the most knowledge and insight about the specific trigger:  When the Joint Investment Committee changes the investment policy on asset class level, the IAC should initiate transaction proposals on product level.  When AA Advisors see opportunities in the market in which ABN AMRO clients can utilize it; or when a key manager leaves the management of a certain fund and AA Advisors’ opinion is that this will influence the fund’s performance.  When client-advisors observe some increased interest from clients in a certain theme or category of funds, they can send their finding to the Investment-Desk. The construction of the Funds-Tool In order to construct the Funds-Tool successfully, the System Development Life Cycle (SDLC) was followed. To recognize the need of the system users, a meeting was organized with the product managers of the IPD. They were asked to come up with properties they want to know. The needs can be divided into 5 main groups of properties:  Categorization: the funds should first be assigned to an asset class and then to a category; every asset class has different categories, which is mainly either a region or a sector.  Performance measure: total return, volatility, beta, Sharpe ratio, Sortino ratio, Treynor ratio.  ABN AMRO quantities: number of clients within ABN AMRO investing in a certain fund and the value of the invested amount.  Product trend analysis: the historical development of the price and the ABN AMRO quantities.  Transaction proposals: monitoring the performance and the capital in- or outflow of the advised funds. Next to the usefulness of the information produced by the Funds-Tool, the success of the system depends also on other critical factors. Therefore, the information system designed for the structured products was analyzed. The lessons learned from this system and the critical success factors derived from the literature were combined and taken into account by the construction of the Funds-Tool. After the Funds-Tool was built, the tool was presented to the product managers and they came up with a number of suggestions for improvement. These suggestions were incorporated in the tool. Then a user guide and a maintenance guide were written. The product managers were asked to work individually with the tool and the user guide, to identify the bugs and inefficiencies in the system, which were corrected. Finally, they were asked to give their opinion whether the Funds-Tool generate the desired insights and meets the critical success factors. The Funds-Tool is received well by the product managers. The average score is 4,48 out of 5. Only 2 criteria have a score less than 4. The first one is the insights in the transaction proposals. Because transaction proposals also include other securities than only funds, it is better to measure the performance in a separate system. The second one is the tractability: the extent whether the system facilitates problem solving and future system development. The tractability stays a weak point and it cannot be improved in the current system environment. ABN AMRO has already used the insights generated by the Funds-Tool. The bank decided to add 37 new funds to the assortment of AIMF, and delete 108 in the long term.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
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