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Rudy Wong Investment Advisor Case Study

1713 words - 7 pages

Kyle Stocker

Rudy Wong: Investment Advisor
Rudy Wong, an investment advisor at O’Hagan Securities was in a predicament that caught him in the middle of his clients and the stock market crash of September 2008. In the United States, the Dow Jones Industrial Average had stooped to its lowest level as well as the Toronto Stock Exchange since 2003. This financial crisis led four of Wong’s clients to request urgent meetings regarding their assets and investments. All four were of different gender, age and particular needs which left Wong concerned that they all hold a risk of losing everything. He had to decide the best way to reassure all of his clients by communicating ...view middle of the document...

A successful advisor will add value to their client by managing their emotional state by informing them with logic in their decision making process while providing historical context for reassured proof. However, the most significant way an investment advisor can add value is by determining the appropriate asset allocation. This served as core strategic plan to provide a benchmark before taking on any tactical position. It helps the client to a great extent because the more diversified their securities are the lower the risk they will take on which is the most important determinant of portfolio performance.
The advisors needed a way to determine client’s investment portfolio and goals and choose the most appropriate investment strategy for the client’s particular needs. O’Hagan assessed a clients profile and strategy by having them fill out a questionnaire which aimed to ensure an in depth analysis of their needs. From Exhibits 5 and 6, the advantages of this questionnaire and profiling was that it helped the advisors to quickly learn their clients investment time horizon as well as their current financial situation like their net worth and liquidity. Also, it was able to assess their general attitude towards risk and provided a guideline for their certain asset allocation. The disadvantages of this however was that it lacked validity and reliability in some areas and that risk tolerance might be distorted due to biases. Examples of this are illusion of control where investors underestimate the influence of emotional decisions upon their choices. Lastly, these questionnaires could ignore behavioral biases such as overconfidence that the client isn’t aware of. The clients investment priorities and goals were somewhat uncovered by a needs analysis which evaluated a clients investment horizon, short term needs and long term planning. The Investment Policy Statement was the outcome of this which included a couple of things. It documented the key financial goals that the client was trying to achieve, the subject to a number of constraints including liquidity needs, investment horizons, tax consideration and any unusual circumstances.
Emotions drive investment decisions to a great extent because people are worried that everything they have worked for can be lost due to a change in the market/stocks. It’s easy for investors to react emotionally, whether through overconfidence in rising markets or reacting with fear in failing markets. Exhibit 12 shows the cycle of market emotions and at what points an individual is likely to see financial opportunity and success or risk. When clients become very optimistic about themselves, therefore driving overconfidence that is the point of maximum financial risk where they need to start to tell themselves to set back and worry about long term investments. After a while of desperation and panic they will become despondent where maximum financial opportunity exists. The pattern will then pick up from where it...

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