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Financial advisors’ ability to tailor client portfolios is no longer a “nice-to-have” but a business-critical advantage. In fact, in a market where 60% of consumers1 are dissatisfied with their current financial advice, a lack of personalization has been cited as the second most contributing factor, only behind rising costs. In addition, 55% of firms’ relationship managers2 say demand for personalized services and engagement is increasing.
However, this is more easily said than done, and advisors face a crucial dilemma: the growing demand for customer-tailored portfolios means an increased burden on time and resources to maintain expectations.
Manually personalizing portfolios to customers’ investing strategies, preferred sectors, and risk appetites is a lengthy process that involves a great deal of research and analysis. This leads many advisors to deploy superficial customization tactics to appease their clients. However, these tactics fail to holistically address the big picture of client needs, jeopardizing advisors’ client relationships and ultimately their business.
The Limits of Today’s Personalization
Current industry portfolio “personalization” deployed by advisors rarely delivers true customisation for clients. Go-to tools such as exclusionary screens and custom direct indexing follow the same approach of removing or changing exposures in a handful of holdings while attempting to mimic a benchmark. However, without a deep understanding of the drivers of risk and return, it is nearly impossible to make these adjustments without altering the portfolio’s underlying profile.
The result is surface-level customization that fails to actually match portfolios with clients’ values and financial goals. Portfolios often drift from their benchmarks and require constant oversight, revealing this kind of personalization to be only skin deep.
These personalization tactics rely on the assumption that diversification is foolproof and that bundling enough weak assets together makes a package safe. This is the same illusion that fuelled the subprime crisis. In reality, slicing or tilting an index does not produce real alignment with client goals or values, resulting in portfolios that aren’t truly personalised and underperform key market benchmarks.
Concentrated position management only compounds this flaw. If a client already holds substantial exposure to a single stock, such as that of their employer, “diversifying” through an index often fails to counterbalance this risk and can actually go on to amplify the exposure.
Portfolio personalization today is built on bad math. It fails to simultaneously act as a values-based tool and strategy for returns. What’s needed instead is a modern approach that discovers optimal allocations tailored to a client’s objectives without forcing trade-offs on performance.
Delivering true personalization is simply too time-intensive for most advisors, and the effort required creates a vicious cycle. Advisors compromise, clients remain dissatisfied, and growth takes a back seat. The system is broken because advisors lack the tools to balance genuine customization with running and scaling their practices.
Drawing on the Modern Advisory Toolkit
Nearly half (47%)3 of today’s relationship managers say they are dissatisfied with the technology their firms provide. The reason is clear: Most tools do little to ease the time burden of providing true personalization. Advisors still spend countless hours designing allocations, monitoring exposures, rebalancing portfolios, executing trades, and preparing reports. These tasks are essential, but they limit growth and prevent advisors from serving clients effectively at scale.
To resolve these issues, advisors must make use of all the tools at their disposal. Using automation technology to help allocate for portfolio optimization and risk modelling, for example, can personalize portfolios to reflect client goals, all while controlling volatility and managing factor exposures. Entire missing asset classes or sectors can be re-expressed through other holdings with similar characteristics, keeping portfolios resilient without compromising values or objectives.
Active monitoring and intelligent automation also help advisors keep portfolios aligned as benchmarks and markets evolve. Trades can be executed automatically across client accounts with precision. Meanwhile, proactive reporting ensures that advisors always have actionable insights ready for client conversations, vastly improving their client relations. What once required constant manual oversight and vast swathes of time can now happen seamlessly in the background.
Positioning for Growth
Making use of the right technology empowers advisors with genuine personalization without sacrificing scale. Removing the heavy lift of portfolio construction, management, trading, and reporting enables advisors to focus on what matters most: building relationships with clients, winning new business, and driving growth.
By tackling personalization with automation technology, advisors are no longer forced to trade between offering top-quality portfolio tailoring and putting the effort into scaling their businesses. Honing in on tech-led customization doesn’t just give advisors more time and free up resources —it will also be the key to pushing advisory forward to reach new industry standards.
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Endnote
1 60% of consumers are dissatisfied with their current financial advice, and a lack of personalization has been cited as the second most important factor contributing to this: https://emoneyadvisor.com/wp-content/uploads/2022/09/eBook_Bringing-Planning-to-More-People.pdf
2 55% of firms’ relationship managers say demand for personalized services and engagement is increasing: https://www.capgemini.com/insights/research-library/top-trends-in-wealth-management-2023/
3 Nearly half (47%) of today’s relationship managers say they are dissatisfied with the technology their firms provide: https://www.capgemini.com/insights/research-library/world-wealth-report/
Auden Ehringer is the chief technology officer of Pave Finance.
Read more articles by Auden Ehringer
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
