Displaying items by tag: customization

According to Cerulli, wealth management firms vying for high-net-worth clients should increase their focus on personalization and private markets. With traditional wealth management, it’s increasingly challenging for advisors to differentiate their services. Additionally, it doesn’t fully meet the needs of clients, especially given unprecedented amounts of uncertainty in terms of the economy, monetary policy, and geopolitics.

A consequence of this uncertainty is unpredictability in terms of return and risk in terms of major asset classes, highlighting the need for effective asset allocation. The report also showed that direct indexing is utilized by 55% of advisors who are looking to provide active management and customization to clients. 

The firm also projects growth for separately managed accounts given high net worth investors’ growing demand for customization and private market investments. As a result, these trends underscore the need for effective account aggregation and performance reporting. 

This enables the alignment of solutions across different areas such as financial planning, investing strategy, banking, estate planning, etc. Equally important, this type of comprehensive reporting and consolidation eases the transition to having higher allocations to alternative investments. 

Finsum: Cerulli conducted a survey of advisors and high-net-worth clients. The findings highlight the importance of providing access to private markets and personalized services.

Unified managed accounts (UMAs) are professionally managed accounts that allow for the use of multiple investment strategies. This makes it a more comprehensive approach than a separately managed account (SMA) which is typically used for a single, targeted strategy. 

As of the end of last year, UMAs accounted for 26% of assets in managed accounts. Growth in UMAs is due to multiple factors; however, two recent factors are improved pricing and an increase in the number of investment options. 

With UMAs, different strategies can be used to construct a customized client portfolio that leverages the best strategies across different asset classes and investment managers. This allows advisors to optimize portfolios by blending various strategies and selecting managers with the proper expertise. 

This means that an advisor could use different managers for different asset classes, such as domestic equities, foreign stocks, and fixed income. UMAs can also allow for more granularity, such as having one manager for a core equity position and another for dividend stocks. 

UMAs also provide a comprehensive view of a client's finances, which means that rebalancing strategies are more effective, and there is more potential for personalization. This includes the ability to add custom models to a portfolio along with third-party ones. 

Finsum: Unified managed accounts are experiencing rapid growth and provide advisors with a more holistic and comprehensive view of a client's finances. 

Direct indexing has many advantages, such as lower costs, boosting after-tax returns, and providing more flexibility to clients. However, some advisors are failing to properly implement the strategy, which means some portion of the benefits are not being realized. 

According to Barret Ayers, the CEO of Adhesion Wealth, advisors should offer direct indexing through unified managed account (UMA) frameworks. Currently, only 2% of direct indexing assets are managed through UMAs, with the majority in separately managed accounts (SMAs) or as a standalone model.

By going through a UMA, tax-loss harvesting strategies can be fully implemented and optimized. With standalone accounts, or SMAs, it’s burdensome to manage rotations out of losing positions or transfer holdings when necessary. As a result, many losses cannot be captured due to penalties or restrictions on wash sales. 

Another benefit of direct indexing through a UMA is that advisors can most effectively leverage core-satellite strategies to build a portfolio. This entails a core portfolio allocated to indexing with smaller pockets of higher-risk, higher-return investments in inefficient asset classes. Within a UMA, this strategy's efficacy can be maximized as it allows for efficient rebalancing, changes in asset allocation, and reduced time spent on administration.

Finsum: While direct indexing is surging in popularity, many clients and advisors are failing to fully take advantage of its benefits. Here’s why direct indexing in a UMA is the best approach.

Direct indexing, via separately managed accounts, is rapidly gaining traction as an investment strategy in the United States, particularly beneficial for those with significant holdings in company stocks, and is already proving to be major movement among prominent investment firms in 2024.

This approach allows investors to replicate index performance while retaining control over individual securities, utilizing automated programs for systematic trading. Once limited to the ultra-wealthy, recent technological advancements have made direct indexing accessible to investors of varying levels, with assets projected to reach $2 trillion by 2024.

Direct indexing offers customization, diversification, and risk mitigation, enabling investors to tailor portfolios to their preferences and goals while reducing reliance on specific stocks. With its tax efficiency and customization benefits, it’s easy to see why it’s so appealing in an SMA format and companies like Goldman Sachs are already making huge strides in this subsector. 

Finsum: The hybridization of products has been one of the defining features of the 2020’s and integrating vehicles like SMAs with direct indexing will continue the rest of the decade. 

A major trend in wealth management is personalization. Due to new technology, financial advisors are now able to offer customized products and solutions without sacrificing scalability. It can help clients reach their financial goals while also creating a stronger relationship between advisors and clients.  

A survey conducted of high net worth investors by PwC showed that 66% are interested in more personalization, while 46% are looking to change or add new advisors within the next couple of years. For advisors, offering personalized solutions will be increasingly important in terms of recruiting and retaining clients.   

Personalization is also impacting model portfolios. Until recently, most model portfolios were built around the traditional portfolio, combining stocks and bonds, which limited customization. Now, there are more options to customize model portfolios, including factors, themes, and values. 

According to research from MSCI, wealth managers can allocate to these strategies without worrying that they would have an adverse impact on a portfolio in terms of returns or diversification. Further, these model portfolios are customized but still retain their core benefits. For advisors, this means spending less time on investment management and more time on client service, financial planning, and growing the business. 

Finsum: Personalization is a major trend in wealth management. Now, model portfolios can be customized, which brings a variety of benefits for advisors and clients without having an adverse impact on returns or diversification.