Fusion Fundamentals March 2023: Lending new meaning to the term Diversification

As an investment professional and a member of several research and investment management teams, I (we) have always worked to protect client assets or help financial advisors build better portfolios to do the same. Much like most of my peers, I have always preached that diversification is fundamental to a well-constructed portfolio. 

The concept of diversification, however, has evolved over time. From “you should not own a single stock” to “you should be diversified by asset class”. Then asset classes extended to alternatives, etc. The failure of Silicon Valley Bank and the stress it has put on the financial system, has caused investors, both retail and institutional, to think again about how well diversified they actually are.

The concept of diversification is really about mitigating risk. Therefore, it is important to ask what risks are relevant in a particular situation. Some of the classics are; Equity Risk, Duration Risk, Credit risk geography and Liquidity Risk. All of these risks are worth diversifying. However, anyone who has ever managed a product platform knows that you also have to think about the risks associated with an over concentration to a firm or sponsor. Even great partners can run into issues of their own. If they falter, what is the impact to your firm. At what point are you over-exposed to the success of a firm that you do not control. 

These are the questions that investors and depositors of banks and custodians around the country, and in fact, the world, are asking themselves today. Where else do I need to diversify to protect my assets and my business. While the concept of diversifying between financial institutions is not new, the events of the last week have put a renewed focus on it. Even more, it does not take the loss of deposits or assets to disrupt a business. Working too closely with a firm that faces an existential crisis can also cause reputational harm to your firm that can hamper growth and impact your business’s reputation.

How Can FusionIQ Help?

  1. We are Multi-custodial. Our platform is integrated with several leading custodians allowing you, as an RIA or IBD, to connect your clients and their assets to your firm regardless of where they custody. This help’s to answer today’s risk and diversification question. However, it is also about growth as it opens new markets and evolves client support.
  2. For Banks and Credit unions, our platform allows you to offer financial institution diversification to your clients while maintaining them as YOUR clients.

FusionIQ offers digital end to investment management and digital advice to IBDs, RIAs, credit unions, banks and more.

Reach out to Peter Brittain, Head of Business Development, to learn more, let us learn more about your needs or sign up for a demo.

John Guthery, CFA
CIO FusionIQ

John Guthery, CFA <br> Chief Investment Officer
John Guthery, CFA
Chief Investment Officer

John is a highly respected investment executive, bringing more than 27 years of experience to his role as Chief Investment Officer for FusionIQ. As CIO, John focuses on developing advisor platforms and business lines including finTAMP and Digital Model Marketplace. He also contributes to FusionIQ’s thought leadership and market analysis.

John’s extensive financial services background includes leading market research, due diligence and platform enhancements for top-tier wealth managers including LPL Financial, where he spent 19 years running product research, Park Avenue Securities, Voya Financial and WP Carey where he helped to design and manage public and private real estate funds and public BDCs.

jguthery@fusioniq.io | Connect on LinkedIn

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