February 21, 2024


Advisors can help clients navigate choppy markets and dire headlines by working with them to build portfolios, a practice known as personalization.

Adam Grealish

Adam Grealish is Head of Investments at Altruist, a custodian built specifically for RIAs. He most recently led Betterment’s strategic asset allocation, fund selection, automated portfolio management and tax strategies.

One advantage of the technology for advisers is that it doesn’t require them to predict the next market decline or the next bank in crisis. It just requires a solid understanding of the client’s goals and values. Especially in this day and age, when concerns mount about the banking industry and its impact on the wider market, personalization can be a valuable tool – with the added bonus of inducing positive behavioral change among customers.

Clients who work with an advisor to develop a portfolio may feel a greater sense of ownership.sometimes called ikea effect, the co-creation process in this context means that clients can demonstrate a greater commitment to their investment during times of market stress. If a client has a high level of confidence in their portfolio, the urge to sell or stay on the sidelines may be less strong. Additionally, when a portfolio includes companies and industries that align with its beliefs or priorities, it can help investors stay focused on their long-term goals and stay the course through the performance volatility that is characteristic of investing.

According to a study, in all markets, clients tend to invest based on positive and negative sentiment 2021 Morning Star Research titled “The Financial Impact of Behavioral Biases.” In this study, 98 percent of respondents exhibited at least one of four common biases among investors, including present bias (the tendency to overestimate smaller current returns at the expense of long-term goals); loss aversion ( excessive fear of experiencing losses relative to gains and relative to a reference point); overconfidence (the tendency to overestimate one’s abilities or information when making investment decisions); and base rate neglect (the tendency to available, readily available information to judge the likelihood of a situation, while ignoring the underlying probability of that event occurring).

The study notes that bias is a pervasive trend that may require advisor intervention, emphasizing the importance of understanding how individual circumstances affect investment decisions. In addition, it provides investors themselves with strategies to mitigate bias, such as ignoring short-term price movements and taking steps before making impulsive decisions.

Direct Indexing and Thematic Funds
When it comes to highly personalized investing, technological innovations have reduced the manual work required for advisors and the capital required for investors, meaning they no longer need to be reserved only for high-net-worth clients.

Direct Indexed Portfolios are privately managed accounts designed to reflect benchmarks that can be tailored to individual investor objectives. By owning a large number of individual stocks, investors can use direct indexation to achieve significant tax and diversification benefits. At the same time, innovations like fractional staking and automatic rebalancing have lowered price points and minimum investment amounts. Direct indexing is especially useful for highly customizable portfolio screens. Faith- or ESG-based screens are also often used to reflect a client’s values ​​or views on a particular issue. Additionally, screening can be used to align a portfolio more closely with a client’s investment philosophy by, for example, overweighting growth stocks or dividend payers. (this Tax incentives What comes with direct indexing is also attractive to customers. )

Thematic Fund Provides another way to customize customer portfolios. While themed funds lack the same level of precision as direct indices, they have fewer moving parts—one fund instead of potentially hundreds of individual stocks. Such funds have proliferated over the past decade, including those seeking to benefit from demographic shifts and those combing hedge fund filings to reflect the most popular deals.

customers expect more
this McKinsey’s next personalized report for 2021 found that approximately 75% of US consumers expect some level of personalization in their interactions with companies and will be disappointed if they do not receive this attention. From a wealth management perspective, Charles Schwab Independent Advisor Outlook Study 2022 Most RIAs were found to anticipate a higher demand for portfolio personalization in the future.

Not surprisingly, younger investors lead the way when it comes to personalizing wealth management. Fidelity Report 37% of Millennials hold consistent value investments and 34% hold thematic investments. These figures compare with 7 percent for baby boomers and 4 percent for older generations.

By relying on personalization and the technologies that enable it at scale, you can meaningfully differentiate your practice while helping to drive better outcomes for your clients.