Rudy Wong Investment Advisor Case Study

Case Study of Rudy Wong
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Case Study of Rudy Wong
What is the role of an investment advisor, and how does an advisor such as Rudy Wong attempt to add value?
The role of an investment advisor is to help provide financial planning to clients. Investment advisors understand that there are many people with a lot of money but with limited knowledge of investments. So, advisors tend to bridge the gap between such individuals by making information about certain investments available. As indicated in the study, advisors also sell securities to their clients as well. However, as the study reports, the above happens “with a view to helping clients optimize the allocation of their financial assets to meet their financial needs.” But it is also crucial to understand that advisors also have to take into account “each client’s financial resources and constraints as well as short-term and long-term objectives.” While offering financial planning advice and selling securities, it is crucial that an investment advisor understands the strengths and vulnerabilities of their clients. Knowing a client’s financial resources and constraints help one avoid eventualities that would render certain investments profitless.
Aside from the above, investment advisors also help to offer valuable advice to their clients regarding any financial decisions a client wishes to make. As the study indicates, they guide clients on “every conceivable financial event such as how to save money on mortgage payments, saving money for a child’s college fund, picking the best credit card and providing retirement planning.” An advisor like Rudy Wong will consider their client’s financial position, their channels of income, as well as all expenditures and then offer informed advice on how they ought to, for example, plan for their retirement. This is how they add value to their clients. Getting the right financial advice has proven costly and not everyone can plan their finances or put themselves in positions of growth. This is where the value of people like Wong is exhibited as they consider all factors surrounding a client and then offer the best or the most calculated approach.
Investment advisors can add value through the information they offer their clients and also through staying objective in their assessment of issues. Advisors are people who understand the subject of risk management and they will always ensure that they have done risk assessment on the investment ideas they offer their clients. However, as indicated in the study, “retail investors tended to be highly subjective and emotional individuals whose psychological temperament could veer rapidly from greed to fear in the wake of rapid market swings.” In such cases, clients can easily engage in irrational decision-making which could be detrimental to their investments. It is possible for clients to be swayed by what they watch on the television or banter on the streets. Their concern is usually on their investments and whether or not they will be able to make any profits. So, any damning news can be taken seriously and could lead them to alter their positions on, for example, a trade or entry into a stock. However, as the study indicates, advisors like Wong add value by maintaining an objective point of view. People like Wong are always in search of the bigger picture and are never swayed by street banter or information from sources like the Internet or the news. They never get emotional or act out of their emotions because they know it can damage their objectivity and how they assess investment positions and ideas. As the study indicates, an advisor like Wong adds value by serving as “the mediator between the client’s emotions and their objective reasoning in committing to a financial strategy.”
Another way investment advisors add value to their clients is through asset allocation. Asset allocation is an investment strategy that seeks to balance risks and rewards. Advisors who can do asset allocation appropriately are able to earn their clients great rewards while ensuring that they maintain risks at low levels.
What do we mean by diversification and what role does it typically play in an investor’s portfolio? How would you explain the difference between ‘active’ and ‘passive’ strategies to a non-sophisticated client?
Diversification means varying investments in the hope of minimizing volatility. It is common for investors to combine securities or portfolios while trying to lower volatility and increase returns. There are numerous ways to reduce volatility. One of them is by investing in low-risk securities. However, with these, returns are also low. So, it is highly unlikely to find investors taking this approach because people like Wong are always mindful of their reputation. The majority, therefore, consider diversification which guarantees more returns. However, there is the aspect of correlation which as explained in the study “refers to whether or not two investments will move at the same time for the same reason and in the same direction.” When there is correlation in the investments or choice of securities, the expectation is that the correlation coefficient will be +1 which would mean that as the value of one security increases, the other one does as well. With such a relationship, profits are guaranteed, unlike a scenario where the correlation coefficient is -1. Diversification, therefore, helps to ensure that returns are guaranteed through the choice of securities with a positive correlation coefficient.
The active strategy of investment is one that seeks to beat the market. What happens here is that a broker buys or sells stocks hoping to outperform or beat a particular index. The index could be the Standard and Poor’s 500 or others. These brokers do not work alone but are dependent on information from a team of experts that analyzes the market and makes predictions. So, the broker works or acts upon the information made available by the team of experts. Portfolio managers who engage in active investing must be wary of all market trends as well as shifts in the economy as these impact companies in the index. Other factors that guide or influence their behavior in the markets are political factors or temperatures and any information that might affect companies represented in the index targeted. All the above information is considered relevant and is used to track any vulnerabilities and irregularities in the hope...