Relationships & Personalization Intersect for the Investor of the Future

By Dan Ferguson, Executive Vice President, Strategy

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The drive towards personalization in wealth management is not a new trend. But the technology to do so, in both the front and back offices, has finally reached a point where it can begin to deliver on the promises of a customized financial plan in a more meaningful way.

In our opinion, the personalization that the investor of the future will demand is going to require firms and advisors to implement and effectively use advanced technology solutions. When the tools used by a firm and advisor work right, advisors can focus on delivering what their clients want and need: Greater control, attention and help, more services, and a personal connection. Here are our thoughts on each of these needs:

Fine-grained control:

As clients get more sophisticated about their investments, and as people see support for their values as a key role of their portfolio in addition to returns, they are asking for more specific ESG-related portfolio decisions. Many are asking to proactively add or remove specific stocks or industries, or focus on promoting certain values such as clean water or LGBTQ+. In fact, earlier this month UBS reported that 90% of investors want to align their investments with their values and 59% indicate they are more interested in sustainable investing as a result of COVID-19.

To get to this level of personalization, clients will need more of their portfolio to be owned directly, rather than through mutual funds. The rise of SMAs and UMAs will enable advisors to offer and execute the kind of precision transactions needed to create a truly customized portfolio.

Time, attention, and assistance:

Clients turned to their advisors during recent volatility and increased their portfolio activity. This increased the workload on advisors, and their ability to absorb and act on those increased requests was part of how they were judged.

Advisors need to be aware of what investors expect of them in terms of communication and guidance. For example, a recent Cerulli report1 shows that the older the investor, and the greater their investable assets, the more they wanted to hear from their advisor about overall market and economic conditions during the height of the Covid pandemic. Overall, 22% of investors surveyed by Cerulli expected to increase their reliance on advisors after last year’s volatility.

Still, having a personalized plan but no time to implement it is a recipe for disaster. Sophisticated platforms allow advisors to offer personalization at scale, and the flexibility to allocate more of their time to direct client requests and questions. Just as important is client education – for example, helping clients understand how a UMA works, or why specific investment strategies might be a good fit.

Expanded services and tools:

The Cerulli report also indicated that 39% of investors 40-49 were interested in increasing their life insurance coverage. Investors also anticipate wanting more access to digital tools such as automated online investment services and budgeting apps, especially younger investors, and those with smaller amounts of investable assets.

All of these are good indicators that advisors should be ready to offer a wide range of services and solutions, tailored to the needs of different investors. The ability to learn or expand expertise in new products, and then effectively market and recommend those products, takes time, which advisors can gain through automation and the use of an integrated platform.

Personal relationship:

Advisors need time to get to know their clients and better understand how to translate their specific values and interests into portfolio solutions. In order to offer a personalized portfolio, it makes sense that advisors need to get to know the “person” they are working with. Traditionally, a once-a-year meeting was the base level, but of course that doesn’t lend itself to much of a relationship.

And that’s a miss. According to Vanguard’s The Value of Advice research, measuring the role of emotional factors in advisor/client relationships, trust and a personal connection account for about 41% of the value clients perceive in the financial advice they receive working with an advisor.

The rise of virtual meetings using video conferencing tools and screenshares, the 24/7 access (sometimes literally) afforded by email, cell phones, and text messages, all have come together and gained much broader acceptance during the recent pandemic. That just accelerated a trend forward-looking advisors have embraced for years. Now that more clients are comfortable with those tools (and the volatility of recent market events made them feel a need to use it) advisors should expect to spend more time, and more frequently, in these kinds of informal back and forth conversations.

All pistons need to be firing

To deliver on the promise of personalization, it’s easy to see why the technology and advisor need to be working in concert on every level. An advisor who doesn’t know their client intimately will not be able to offer the kinds of solutions that will appeal to them; an advisor who can’t operate efficiently won’t be able to deliver on those plans for many clients simultaneously.

Ultimately, it’s the investors and clients of the future who are at the root of every strategic decision advisors and firms will need to make in the coming years. Understanding investor intentions and desires intimately – and being able to make tough choices about who will be served and how – will help advisors and firms make smart decisions about investments in back-office platforms, what solutions to offer, staffing, value proposition and even what their business model looks like.

Even without a crystal ball, it’s easy to see that the trend is towards offering greater personalization and operating at higher efficiency. We believe advisors and firms that make those the guiding principles of their decisions will be better positioned. As for the exact details of how each group will find success, only the future will tell – and Vestmark will be here to help you create it.

1 The Cerulli Edge: U.S. Retail Investor Edition, Issue #21, 4Q 2020.

By Dan Ferguson, Executive Vice President, Strategy