BSP urges wealth managers to be more prudent

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) urged the country’s wealth managers to be prudent in managing the trust funds of their clients that stood at P2.17 trillion as of end-September last year.

BSP Governor Amando M. Tetangco Jr. said in a speech during the first general membership meeting of the Trust Officers Association of the Philippines (TOAP) that there is a need to strike a balance between the pursuit for higher yields and the higher risks that come with higher yields.

“Often, the intent to better manage funds can easily translate into a pursuit for higher yields. Odd as it may sound to the broader public, such higher yields may not necessarily be beneficial to the investor who is either or not in the position or would rather not be in a position to take on the higher risks that come with higher yields,” he said.

He told TOAP members that the “prudent man rule” should always prevail over the business pursuit for higher bottom line.

“Your role is not simply to accumulate more funds to manage. Rather, it is to manage the risks that arise from the investment of the cash flows you receive. This may mean forsaking higher yields that may be incompatible with your client’s needs and profile,” Tetangco added.

Data showed that the trust industry survived the global financial crisis and remained vibrant after assets under management nearly doubled to P2.12 trillion as of end-September last year from P1.17 trillion in 2007 during the onset of the crisis.

Tetangco said total accountabilities of the trust industry accounted for a fifth of the nominal value of goods produced in the Philippines that amounted to P9.75 trillion last year.

The country’s domestic output as measured by the gross domestic product (GDP) posted its strongest growth in 34 years after expanding by 7.3 percent last year from 1.1 percent in 2009.

The BSP chief pointed out that the trust industry is uniquely positioned to generate greater wealth for the Filipino saver and to ensure sustained economic growth for the country.

Aside from accumulation of funds to manage, Tetangco reiterated that wealth managers should also consider the nature of the cashflows and the risk-return trade-off when generating those flows.

“Market conditions are not static, and as these shift, the character of your clients’ holdings also changes. In addition, if expectations of the future change, that too will likely influence investors’ decisions of when and how to save. In turn, these will affect the level and pace of economic growth,” he added.

Tetangco vowed that monetary authorities would continue to create a regulatory environment that is flexible, that encourages fair competition, while at the same time ensures that there is sufficient consumer and client protection.