Mapping your firm’s future

When thinking about your firm’s strategy, consider where you stand on the 4 Ps — personalization, purpose, private markets and portfolio construction

2020 was a year unlike any other. In the wealth management space in particular, there’s no denying that the entire ecosystem has been impacted by the pandemic. M&A activity, technology platforms, product offerings and even the adviser-customer relationship have changed over the past several months.

As firms look ahead to another year that will undoubtedly require them to further alter how they do business, what steps can they take to drive their focus and demonstrate the value they deliver? What can firms and advisers do to ensure they not only maintain relevancy, but grow and thrive?

THE FOUR Ps

We’ve identified four key themes, which we dubbed the 4 Ps, that we think can help firms navigate this unprecedented environment, particularly in the investment product and solutions space.

PERSONALIZATION

We’re officially in the era of personalization. This is driven by the pervasive availability of data that allows us to make predictions about how to align investment strategies to clients’ objectives and goals. There are also two technology elements coming of age — direct indexing and fractional share trading — that will enable personalization and give advisers the opportunity to offer products like separately managed accounts to a much broader set of clients, as well as take into account individual clients’ preferences and values.

While this will likely benefit many clients, it will also make measuring performance more challenging. So consider how your firm can embrace new paradigms like outcome-based performance or financial plan-based performance to truly take advantage of personalization.

PURPOSE

Advisers can increase the level of personalization for their clients by having discussions with them about the second P: purpose.  In this context, purpose is about identifying clients’ values and incorporating them into their portfolios, primarily through environment, social, and governance investment products and solutions. While we’re seeing strong interest in ESG investing from investors, according to our research, fewer than 1 in 3 advisers are comfortable having conversations about ESG with their clients.

That could mean they’re missing a critical opportunity to engage with clients — younger generations in particular — and have deeper and more meaningful conversations beyond just their investments. So consider how you can incorporate purpose not only into your clients’ investment strategy, but also into your client engagement strategy. 

PRIVATE MARKETS

Analysts estimate that private market investments in areas like private equity, real estate and other nonpublicly traded assets will continue to grow despite near-term headwinds from COVID-19. This trend is driven by a few things: The number of listed companies has decreased by about one-third over the past 25 years, while market cap has increased by almost 500%. Add to that the concentration we’re seeing in the public market indices, with a handful of tech stocks now accounting for more than 27% of the total capitalization of the S&P 500 Index. 

Those forces are making it harder for your typical investor in the public markets to generate alpha and simultaneously are making access to private markets even more critical. 

So consider how your firm — large or small — can access private markets as a path to differentiated investing for your customers.

PORTFOLIO CONSTRUCTION

The fourth P — portfolio construction — brings it all together. With personalization, purpose and private markets added to the standard allocations to consider like equities, fixed income and cash, portfolio construction is more critical than ever.

Personalizing portfolios to the real-life concerns of advisers and their customers is important and may ultimately require the confluence of a range of budgeting tools: risk budgeting, fee budgeting and liquidity budgeting, with an overlay of purpose profiling.

Looking ahead, some early stage investors and innovative incumbents are betting on autonomous finance — AI-driven financial services that independently make decisions or take actions on a client’s behalf. As these technologies advance well beyond the first generation of robo-advice, it will be important for our industry to demonstrate the exponential value the human adviser can deliver alongside the autonomous financial planning functionality.

These 4 Ps offer a framework to keep in mind as you map your firm’s product and solutions set. In a world riddled with uncertainty, deconstructing big ideas into action steps will allow you to focus on what you can control, and make true progress for your firm in forward-looking trends.

Mike Durbin is the head of Fidelity Institutional, which offers clearing, custody, investment products, brokerage and trading services to financial intermediary firms and institutions.

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