Insights for advisers, by advisers

Evergreen launches portfolio stress-testing tool for advisers


Evergreen Consultants, founded by experienced consultant Angela Ashton, this week launched an industry leading stress testing program for financial advisers. It is said to be the first of its kind made available in the ‘retail market’ and is available to Evergreen clients via their proprietary GreenVUE reporting platform. The launch comes after the most volatile year in recent memory and at a time when the move to discretionary portfolios, in the form of MDAs, IMAs and the like grows ever faster.

According to Ashton “one of the most common tools that institutional investment managers use to manage their risk is portfolio ‘stress-testing’” which is aimed at understanding the potential impact of varying events on portfolios. Advisers on the other hand tend to find this difficult to do adequately, due to their many other responsibilities as business owners.

The types of events the stress testing tool can be used for include debt crises, like we saw in the GFC and Europe in the 2000s, bouts of inflation or even a pandemic.  Ultimately, “GreenVUE allows an adviser to visualise their investment portfolio’s risk and return characteristics, given multi-factor analysis of Portfolios in a range of events and market influences”.

The pandemic was a perfect example of why professional investors, including financial advisers, need to pay more attention to the risk part of the risk-reward equation. Many institutional investors were caught out when ‘balanced’ portfolios fell significantly more than their names suggested during the worst of the selloff. In many cases, traditional correlation expectations did not act as expected during the volatility. 

It is all well and good to be generating the strongest returns, whether in the form of passive or active management, when markets are rising, but what happens to client returns when they fall. As Ashton says, portfolio settings tend to be “all right until they’re not”.

In Evergreen’s view risk should be a central consideration for advisers, particularly as the professionalisation and evolution of the industry continues at pace. “There is no way to invest without risk, but the best way to guard against risk is constantly measure it” with this stress testing tool likely to be a key selling point to financial advisory firms seeking to professionalise and upgrade their investment operations. According to David Cohen, analyst at Evergreen Consulting, platforms are increasingly asking for stress testing in their capacity as responsible entity (RE) over the growing number of managed accounts.

This is an important point, as the discretion and efficiencies afforded by MDAs and similar services, will require an increasingly robust and institutional approach to investing. Clients and trustees will demand greater levels of oversight and risk management as assets under administration continue increase. It will likely take time for these to be delivered, this is clearly a step in the right direction. 

Subscribe to our Newsletter​

Share on facebook
Share on twitter
Share on linkedin
Share on email

Leave a Comment