In yesterday’s edition of the Business Observer there was an article headlined ‘SIJL customers to assume more risk’. It has evoked the following response from Scotia Investments Jamaica Limited:

This headline is factually incorrect. SIJL serves customers who have varying investment and risk profiles. SIJL uses a robust advisory approach to investment consultations, which captures an individual’s objectives, timelines and risk tolerance in meeting their investment objectives. This approach follows global best practices.

Furthermore, by utilising this robust portfolio consultative approach SIJL actually reduces the risk that customers would take to investment by an over-concentration in any particular asset, and promotes the full benefits of diversification, etc.

This approach is actually reducing the risk that each client would otherwise be taking in the absence of this strategy.

The article says: “Clients of Scotia Investments Jamaica Limited (SIJL) will be assuming more risk associated with their investments as the financial services provider shifts focus to asset management and brokerage services.”

This statement is factually incorrect for the following reasons:

(1) The asset management and brokerage business currently exists. It is not new portfolios that are created for clients based on their particular circumstances to meet their individual needs and objectives.

(2) All clients who invest in these products go through a careful assessment process that meets international best practices to ensure clients are making the best decision to achieve their particular investment objectives.

The article has misconstrued two different types of risk:

(1) the risk that clients are willing and able to take that matches their investment objectives, and

(2) the changing broker-dealer business model, which is being made less risky primarily due to regulatory changes that have occurred in recent times.

Based on our robust portfolio advisory model, each client’s portfolio is created based on their particular circumstances, including their ability and willingness to take on additional exposures to achieve their investment objective.

Our Chief Executive Officer Lissant Mitchell’s presentation to the SIJL annual general meeting included the following, which we feel has been misinterpreted:

“Last financial year, another transformative structural change occurred, with the full implementation of the trust-based repo framework to manage repo liabilities. This new framework will shift the burden of risk away from financial institutions to the new trust-based framework, and ultimately clients, thus strengthening the financial system by protecting it from systemic risk. The implications of this change will be a fundamental shift in the core business model of the industry, from a large dependence on interest income towards more dependence on non-interest revenues.

“This shift will also be driven by clients, some of whom will likely find repos less attractive than market-based alternatives, and thus diversify away from repos to fund-based products, fixed income and equity securities.”

This section speaks about an industry-wide change, and not specifically SIJL. The regulators have implemented this structural change to enhance and strengthen the overall financial system. The strengthening of the financial system is, in fact, one of the primary objectives of the regulators.

Mitchell also said: “Thus, your company’s vision of the future is characterised by a market where clients are in control of their own return destiny, determined by their individual risk tolerance. In this new paradigm, clients are demanding more access to international investments, new cutting-edge products and services, and a robust governance structure to manage and monitor the risk in their portfolios. This is what clients are demanding today, and we see this trend increasing progressively over the coming years.”

This comment speaks to clients determining their own return destiny based on their risk tolerance. In other words, clients will make decisions around their expected returns based on the level of risk they are willing and able to assume.

Though not in the article, CEO Mitchell explained to the annual general meeting: “Within this context, your company is focused on becoming a market-leading asset management and brokerage firm, providing clients with the best investment opportunities within a risk framework that reflects global best practices. We see this as an exciting growth business that can provide the best risk-adjusted returns for shareholders and are eager to complete the transition to this new framework.”

This is saying that at SIJL, we have focused our strategy on becoming a market-leading asset management and brokerage providing clients with the best investment options within a risk framework that reflects global best practices.