As financial advice has evolved from portfolio management to holistic financial planning, advisors must provide more services. This results in adding headcount and higher costs.
This also forces advisors to choose between two types of portfolios for clients. Scalable investment models or highly manual, personalized portfolios. Model portfolio usage is expected to represent over $10 trillion dollars of AUM in the next few years. This is because they have so many benefits.
Models align perfectly with both long-term goals and risk questionnaires. And most importantly, their undeniable efficiency allows advisors to unlock much needed capacity for planning and AUM growth.
But models are contending with two major headwinds: demand for personalization and taxes. Consumers are accustomed to increasing personalization from their products and services. And, after 15 years of market appreciation, managing capital gains is a challenge in taxable accounts. Traditional models cannot solve these problems.
Advisors that address these problems by delivering highly personalized portfolios often struggle with capacity for growth. Advisors that choose scalable models may struggle to acquire larger, more sophisticated prospects. They also risk losing their largest and most valuable clients to competitors that focus on custom portfolios and tax management.
The good news is that technology now enables advisors to easily deliver both scale and personalization. We believe wealth managers that adopt and implement this approach will take more market share of HNW and UHNW clients by eliminating this either/ or dilemma.
