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Personalizing Portfolios… at Scale

Updated: Jul 17, 2023

April 2023

Clients largely prefer traditional advisors over digital services because they want personalization. Yet, will personalization be the Achilles heel that hinders growth for human advisors? We aim to deliver a solution that can help advisors achieve both personalization and scale.

The debate over digital advisors (aka robo-advisors) versus traditional advisors have raged on for many years. The ongoing debate more or less can be posed as follows: Will the proliferation of digital advisory firms pose a real threat to, or even spell the end of, the traditional human financial advisory industry? With the benefit of time, the results appear to be quite clear. More than a decade since the advent of the first digital advisor, data indicate that digital advisors remain a small component of the wealth management industry – human advisors still dominate the landscape and the robots have not taken over.

Why? According to an excellent survey conducted by Vanguard, the key point appears to be that human advisors provide the emotional support and comfort that digital services cannot yet replicate. [1] The survey indicates that clients highly value human advisors who can understand them on a personal level, and, create solutions or find products that meet their unique needs. In short, clients still crave personalization.

Chart 1: Clients Highly Value the Personal Touch of a Human Advisor

Proportion of survey respondents that prefer one delivery system over the other

Source: Vanguard, Costa P, Henshaw J., “Quantifying the Investor’s View on the Value of Human and Robo-Advice”, 2021. Notes: In this figure, all 1,518 clients answered the question. They were presented with the micro-interactions and asked to rate whether they preferred that service to be delivered by a human or a digital advisor. The ratings were presented on an 11-point scale, where 0 meant “Completely delivered by a human” and 10 meant “Completely delivered by a digital service.” Clients were considered to prefer human delivery if their rating was between 0 and 4 and digital delivery of the service if their rating was between 6 and 10.

Personalization Makes Businesses Harder to Scale

This is all great news for the human advisor, but therein also lies the rub. Personalization usually means that each task for each client is highly manual, which makes it harder for advisors to scale up their business. In turn, the failure to scale comes at a high cost because it means advisors cannot fully optimize the economics of their business. Fortunately, while technology can be a threat, it can also come to the rescue. In this case, Illuminence has developed a system that allows advisors to achieve personalization at scale for targeted activities - so they could basically have their cake and eat it too!

“The longer-term vision of Illuminence is to use data science to assist in many advisory tasks and make technology an enhancer rather than an adversary to the wealth management industry.”

There are almost endless ways to create unique, engaging experiences for a client. On the client servicing side, personalization usually relates to an advisor’s interaction with the client, i.e., in understanding and providing the type of interaction a client needs. On the investment side, it usually relates to creating unique strategic allocations and investment policies, and/or, finding suitable financial products for the client. The longer-term vision of Illuminence is to use data science to assist in many of these tasks and make technology an enhancer rather than an adversary to the industry.

Create Better Quality Portfolios, Faster

Among the best areas that present technology can assist in, is the task of navigating markets and customizing portfolios. As any seasoned advisor knows, current news-flow is always good fodder for discussion with clients. Clients frequently seek guidance on finding attractive assets and mitigating market risks, yet such activities can be very time consuming for the advisor. Often, the work entails not only generating reasonable views in times of great uncertainty, when information is scarce, but also implementing those views in a portfolio that is subject to many considerations such as asset class and risk constraints.

Luckily, this is an area where computational power can be of tremendous help. Here, we adapt technologies that can already be found in academic research and deployed in practice by institutional asset managers, to wealth management. Unlike in traditional asset management however, our focus is as much on building good portfolios, as it is in making the output user-friendly and intuitive to clients, which is oftentimes easier said than done. For us, satisfying user experience is what differentiates a technology and makes it enduring.

A Future of Increasing Personalization

As in many industries beyond finance, technology can act as an enhancer to our daily lives rather than an adversary. We believe the promise of data science here is very real - and for users who can adapt their practices and harness the potential of data, the rewards will prove to be exponential. After all, clients will likely be demanding more personalization in the future, not less – and being able to scale ones’ practice will be paramount to success.

[1] Costa P, Henshaw J., “Quantifying the Investor’s View on the Value of Human and Robo-Advice”, Vanguard, 2021


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