The challenge to balance in-house views with client preferences
Wealth managers have said they are experiencing difficulties in aligning their company’s in-house views with the ever-increasing needs of clients, according to MSCI.
One of the features of wealth management firms is their chief investment officer will typically form a range of in-house views regarding certain asset classes or strategies and how much exposure to hold to these, which are then followed by the advisers working for them.
However, Alex Kokolis, head of wealth management at MSCI, said it is getting harder for advisers to follow these guidelines and simultaneously meet the individual preference of their clients.
Its Emerging Trends in Wealth Management report earlier this year found wealth managers are more readily offering bespoke portfolios to a larger client base, thanks to technology advancements which have transformed personalisation from a luxury into an industry standard.
Some 60 per cent of wealth managers say they expect the majority of their high-net-worth client portfolios will require some degree of personalisation now or in the near future, with tax optimisation and investment preferences identified as the top reasons.
“While some firms saw it as a differentiator, it was not a widespread industry focus due to the high costs and labour-intensive nature of tailored services, but technological advancements have begun to dramatically reduce costs and allow for efficient and scaleable solutions.
“Clients are increasingly conscious of how their investments affect society and the environment. They are no longer satisfied to focus only on financial returns; they want to ensure their portfolios align with their personal values.”
Speaking to Money Management, he said: “Many financial advisers and wealth managers spend a lot of time still on operational tasks. Sometimes they say it’s easier for them to build a custom portfolio than to try to follow their in-house views. Getting that in-house view into a portfolio is critical, so to hear they are struggling with this, that’s a challenge we are trying to solve.
“If a client comes in and they say they are ‘moderate’ or ‘aggressive’, then the adviser can say, ‘Here is the best investment portfolio for you considering the allocation across asset classes.’ The CIO will have views across those asset classes and selected funds to use, but once the client comes in, then they may have their own restrictions or preferences. How do you express those against the CIO views?
“That’s where there is huge opportunity to improve, and MSCI wants to offer more rules-based portfolio management.”
One critical aspect of this regards the definition of “adherence” and whether the advisers are adhering to the house views. For MSCI, it said tools and analytics can demonstrate whether this is the case, even if the decisions aren’t specifically the same as the in-house decisions.
“Adherence used to mean whether it looks exactly like the CIO’s best advice. Now it’s not about whether it’s an exact lookalike, but about the behaviour, and whether the portfolio performs in the same way as that view. That’s where MSCI is using its analytics to dive into it and say, ‘It may not exactly like it, but we can tell you using data that it’s at least 80 per cent similar.’
“So now you can have 10 clients who are following the same model but in 10 different ways, and the CIO can still ensure it’s still following their guidance.”
The firm’s MSCI Wealth Manager tool is its core technology offering for wealth managers and to be used for features such as monitoring account performance, sharing in-house views, reassessing risk and rebalancing of portfolios.
Other options are custom indices which are designed to incorporate a client’s investment preferences as well as their exclusions and restrictions, and can be used both as an investment universe and performance benchmark for the client’s personalised strategy.
AUTHOR
Laura Dew
Recommended for you
The financial advice industry is experiencing a “champagne problem” regarding pricing, with advice firms seeing no need to cut their prices to remain competitive.
Marking a decade offering managed accounts in Australia, BlackRock has elaborated on the changes it has seen in their usage by financial advisers, with net client flows rising from 4 per cent to 25 per cent.
AZ NGA’s CEO has unpacked how its recent $345 million debt facility from Barings will accelerate its advice network’s growth ambitions, and allow its largest firms to access a greater source of funding.
Research by Colonial First State has found women are reluctant to make retirement preparations, despite 62 per cent saying they feel that they are unable to achieve a comfortable retirement.
