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Householding: How do we add value to clients with virtual portfolio and aggregation?

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by TechRules
| 13/03/2023 09:00:00

What does “householding” mean? It’s a group of linked accounts, whether that is for family, generational or intergenerational reasons.

For instance, you can use family ties (my husband/wife, my children or my own accounts) to create a “Household” while investing, giving this group a more accurate representation of the client’s financial situation than individual accounts.

Both, clients and the financial adviser can look at the bigger picture in a holistic way and from different angles in order to achieve the stated goals. Moreover, they can also evaluate the impact of the decision-making in a more precise and accurate way as they take into consideration all the relationships. 

But why are “householdings” useful?

  • Because they allow you to have a complete understanding and clear vision of your client’s assets as well as their financial situation.

  • They offer you the chance to group, strengthen, divide, segment and distribute the clients’ data and information.

  • Financial advisers can produce, prepare and distribute the information in different formats, depending on the recipient, hence offering a better service.

The bottom line is that financial advisers become empowered in order to deliver a top-quality service to their clients and ensure that they meet the client’s needs.

That being said, financial advisors must have appropriate, reliable and efficient technology in order to handle households’ large amounts of data and achieve competitive advantages.

Furthermore, these solutions’ architecture must be prepared to:

  • Have a strong foundation to be able to add data from multiple sources.

  • Visualise data in different levels or layers.

  • Protect sensitive data, demanding the application of securitisations that guarantee their confidentiality, integrity and availability.

Another important point to take into consideration is the different investment strategies and types of products that are involved in more complex investments (hedge funds, private equity and alternative investments, amongst others). All of them have different idiosyncrasies that must be considered and integrated properly, as not every wealth management solution is compatible with those kinds of assets.

On the other hand, “households” need a more sophisticated risk monitorisation, as well as portfolio tracking, compared to the pre-established goals stated in an Investment Policy Statement (IPS).

In summary, approaching “householding” makes business sense since it brings value to the clients and builds customer loyalty. However, in order to implement this strategy, it is necessary to measure the effort and tools needed to:

  • execute it efficiently

  • make it sustainable over time

*An Investment Policy Statement (IPS) is a document written between a portfolio manager and a client that outlines the general rules for the adviser. This statement explains the client’s investment goals and aims, and describes the strategies the manager should adopt to achieve those objectives. Specific information on issues such as asset allocation, risk tolerance, and liquidity requirements is included in an investment policy statement.

Read the original article here.