Over the past few years, we’ve seen valuations balloon — making the wealthy wealthier but also making their situations more complex. Portfolios for individuals and families are becoming much more than just collections of stocks and bonds. Centrally-managed investment teams or home offices are pressing their own strategic and tactical allocations across client portfolios. Additionally, allocations to private and illiquid asset classes are becoming more common than not. This significant shift in process and strategy has led wealth management organizations to adopt a more institutional investment management approach, and is defined by two significant objectives: (1) bringing institutional-quality tools and data to the advisor and, (2) leveraging “Front-to-client” technology to demonstrate a differentiated and objectives driven process.
Bringing institutional-quality tools & data to the advisor
Some advisory organizations have been running institutional approaches for years, but in almost all cases only a handful of investment team members are able to navigate complex modeling programs and processes to generate analytics and reports. For example, a firm might run a proprietary mean-variance portfolio optimization process using an excel spreadsheet with multiple python plug-ins. This manual process is not scalable as HNW and UHNW portfolios grow in complexity and the overall firm grows in size. Since modeling frameworks are typically executed by a select few, this creates a huge barrier to a firm's ability to scale effectively.
Within the mass-affluent category, large private wealth institutions have been rewriting the role of the home office investment team. As organizations seek scale and governance, home offices are employing technology that integrates their own assumptions, asset class framework or risk factor framework into an advisor's everyday portfolio management workflows. These powerful proprietary tools might be easy to use by the financial advisor but they leverage highly sophisticated investment models and data sets. For example, organizations are building proprietary proposal tools that take two minutes to complete but harness the home office’s IP in totality. This shift is allowing organizations to ensure $100k portfolios are receiving the same quality of management as a $10m portfolio.
Many wealth management firms are also adopting a modular approach, where the component parts of their investment processes are each neatly defined, apply common inputs and outputs, and connect with one another. Some parts are managed by the investment team, while others are managed by the advisor. This approach requires a well-considered range of building blocks, or model portfolios, that can be adapted and combined for different client objectives.
But not every client wants a cookie-cutter portfolio solution, and the advisor does not want to be entirely constrained by their central investment team. “Customization” also extends to the way in which solutions are built and positioned to the client. Wealth management firms are still developing an optimal balance of scale and customization but adopting a modular approach has enabled the investment team’s institutional process and data to reach each component of the portfolio and client experience. Many groups are starting to leverage the very same tools used to create a solution when creating objectives-driven client output.
Senior stakeholders at these organizations are starting to recognize that communicating the true value of their investment team involves arming advisors with powerful tools that fully represent the firm’s thinking. In the past, customizable tools have typically been out of the reach of advisors because they are fragile or too complex to operate. As APIs and cloud-based technologies infiltrate tech stacks, organizations are now able to create tools that harness the firm’s own thinking and are built with the end-user in mind. These toolkits improve upon a range of previously cumbersome workflows, including (but not limited to) portfolio prospecting, live portfolio monitoring, and addressing what-if questions posed by clients in real-time.
Leveraging "Front-to-client" technology to demonstrate a differentiated and objectives driven process
Over the past decade, most wealth managers have sought better integration of their front, middle and back-office systems and data. Helping to improve efficiency and reduce operational risks, these projects have consumed swathes of resources and time, and in many firms, are still in motion. But through this period, firms have neglected the need to better connect the investment “front office” with their most important stakeholder — the client. As portfolios become more complex and investors demand increased transparency, firms are shifting focus on amplifying the investment groups' research and data in client engagements — taking center stage is the concept of “front-to-client” integration.
Most firms face a fundamental problem — the information accessible to their investment team far outweighs that of their end client. Achieving front-to-client integration redresses that imbalance. For many, this requires a re-wiring of their existing processes, systems and people, and ultimately breaking the connectivity barrier. Therefore, firms are now providing more access to investment data and information and creating dynamic engagements with clients.
So what does this entail? Investment managers have long structured their organizations with a clear separation between their investment/home office teams, financial advisors or relationship managers and end clients. For example, home office investment teams at large wealth managers create thought leadership, broad asset allocation targets and lists of preferred funds; however, many have remained siloed from actual client portfolios. Breaking down the barrier between the investment team and client starts with sharing rich investment data and information that is more accessible and consumable by the client.
This is all possible as flexible cloud-based platforms emerge within the industry — teams are now shifting their proprietary models, data and workflows onto flexible cloud-based systems that can be used by the advisory teams and ultimately easily consumed by the client.
Original article can be accessed here
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At Jacobi, we've sat in our clients' seats and managed multi-asset portfolios. We understand that technology needs to be built to fit your investment processes, philosophy and data structures. Our platform is designed to magnify your investment philosophy and processes, leverage your data structures and be accessible from anywhere in the world to enable greater engagement.
