We were recently invited to speak at a meeting of the Securities & Exchange Commission (SEC)’s Asset Management Advisory Committee (AMAC), and were only too happy to oblige. The committee comprises a number of asset management experts—representing the interests of retail and institutional investors, small and large funds, intermediaries, and other market participants—who look to provide the Commission with diverse perspectives and recommendations on industry developments. 

In particular, July’s AMAC meeting sought to expound upon the implications of rapid technological advancements that have facilitated widespread access to personalized investment solutions. What do these tools offer? What does this mean for the future of the industry? What role can advisors play in this process? And how can we ensure that investors are shielded from risk as these personalized products become more commonplace? 

Ethic is passionate about moving the industry forward, so our co-founder and chief compliance officer, Jay Lipman, convened with other leaders in the asset management space to discuss the growing momentum behind personalization. You can view the full webcast here—Jay’s segment, which forms part of the Evolution of Advice Subcommittee’s panel discussion, begins around the 1:11:35 mark. To follow along with Jay's presentation, you can access the slides here.

Jay kicks off by briefly talking about the impetus for Ethic’s founding and what we do for our advisory clients (1:11:35)

Jay reflects on why we’re seeing investor demand for personalization (1:18:44)

“What is the emerging expectation now? It is peace of mind and it is fulfillment...we believe that, through the personalization of investment products, we can facilitate that rise up in the value stack…that additional value being added to the end investor.”

Jay goes on to note that, from the end client’s perspective, this additional value may present as increased personalization around financial and ethical considerations. Increasingly, personalized investment solutions may also help families to codify shared intergenerational values and define their collective legacy.

Jay outlines the role of technology in the personalization process (1:20:09)

Jay describes how Ethic’s scalable, 360-degree solution seeks to help advisors:

• Identify which clients represent a good fit for personalized investment solutions
• Determine clients’ environmental, social, and governance (ESG) preferences and how they might be incorporated into a portfolio
• Create passive index exposure that reflects the client’s individual investment profile, including tax preferences
• Trade and execute on personalized investment portfolios while seeking to mitigate risks
• Provide continuous monitoring and management to ensure the portfolio’s alignment with the client’s stated priorities
• Further engage with clients through ongoing impact reporting

Jay dives into some of the considerations associated with the investment personalization process (1:25:22)

Jay posits that, when implementing direct indexing technologies, the customer experience should be at the heart of decision-making processes. As the field continues to evolve and mature, the asset management industry should be weighing how a proliferation of new data sources will shape portfolio inputs and consensus-based standards around use of information.

We should also be proactively thinking about which types of information will better equip investors to differentiate between and compare investment products—including traditional index funds—and how investors can assess their personalized choices over time. At the end of the day, transparency is paramount to the end client experience.

“So many of these considerations do change and do evolve— what’s the process and mechanism to ensure that that evolution is being captured appropriately and scalably?”

...and some more considerations (1:26:11)

Jay highlights the need to maintain adequate transparency and regulatory oversight throughout the entire value chain while simultaneously continuing to promote innovation that stands to benefit the end client. Looking to the future, Jay also ponders the ways that asset managers can offer differentiated reporting capabilities for their personalized investment products.

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Jay responds to questions about user demographics and regulatory environment (1:34:34)

Jay explains how Ethic’s technology has seen adoption across a wide array of demographics. The reason? “Advisors have realized that, as things become increasingly commoditized on the investment management side, this [direct indexing] is a means of really engaging with the client in a deeper capacity. By understanding what their values are, and helping them look for a more differentiated product that can really reflect their specific needs...it may take more time, but it is...what they may believe to be a higher value-add.”

Finally, Jay contends that arguably the most important piece of the personalization puzzle is transparency. Asset managers and regulators should be committed to ensuring visibility in terms of product input (i.e., the financial and ESG data being leveraged in the portfolio creation process) as well as output (including the mechanisms for continually monitoring and managing individual portfolios in line with a client’s evolving needs and expectations).

Conclusion

The burgeoning trend toward personalization can be observed across a multitude of industries, with marketers clamoring to deliver exceptional, unique experiences that meet (or even exceed) customer expectations. This approach has helped countless companies to deepen their connection with customers, engender loyalty, and achieve better business outcomes.  

Increasingly, personalization is becoming table stakes in the wealth management industry as well. Amid fee compression, regulatory changes, and evolving client demands, the pressure is on to deliver investment solutions that reflect investors’ unique values, tax preferences, and financial priorities. Ethic is focused on powering efficiency and scale throughout the entire investment personalization lifecycle—when you’re ready to have the conversation, we’ll be here.