Time for a new breed of portfolio management tool

Volatile financial markets, a diverse and evolving product set, new and more demanding regulations, changing and enhanced client demands, new competitive forces and the enhanced role of technology as a challenger and enabler: the stable environment of wealth management is not what it once was.

Amid this disruptive backdrop, one area where we see real change is around the core role of many wealth management firms: running money for clients. More specifically, we mean the technology tools that are seeking to significantly enhance and improve this function.

Whatever the investment focus, asset class or product mix, there would be not much left for many wealth managers if the role of money manager was taken or significantly impacted from market trends. A performing, marketable and engaging portfolio management offering is fundamental to their businesses. 

Moving forward, further enabling this core proposition with modern tools will be increasingly valuable, whether we are talking about driving performance, finding investment opportunities and justification, bringing personalisation to clients, driving engagement and sales opportunities, and more. Portfolio management, while under pressure in many ways, will find new channels to justify its existence.

Historically, the process of portfolio management has been supported and scaled through some form of portfolio management system – one built to manage portfolios for clients, to account for their assets, positions and holdings. These systems evolved into broader platforms with the addition of tools for needs such as aggregation and reporting, client relationship management, compliance, business intelligence and more. 

Fantastic bits of kit but, wealth managers now need these systems to deliver much more. This is easier said than done within the existing build and delivery frameworks so, instinctively, a new breed of tool is both needed and now emerging.

Enhancing not replacing

The market might therefore feel some excitement or, at least curiosity, at some of the new technology tools and solutions that have come to market to support the portfolio management process. This is not about replacement; the portfolio management system still has great value, but it can be built upon and empowered.

Think about the Taxficient Score from Boston-based LifeYield. This solution provides something akin to a credit score for tax efficiency with a client’s accounts. Why is this important? There is the simple element of reducing tax inefficiency and therefore cost and waste within a client’s portfolio. But, also relevant is the fact that the score also forms a basis for any adviser to engage their clients in a journey to tax efficiency and therefore provides a client engagement, retention and prospecting benefit.

New York-based ActiveAllocator is a digital asset allocation support solution for advisers, helping them to engage clients, help them make smart decisions and bring previously inaccessible alternative assets into a client’s portfolio. Other tools that might fit this theme in the US are AllocateRite, FactorE by AlphaCore Capital and the Algonath from FinMason.

Meanwhile, in Europe, we have firms doing similarly intelligent things that aim to support the portfolio build, analysis and value extraction process such as ClearMacro and Butterwire in the UK and AAAccell and EdgeLab in Switzerland. While in Asia you might look at solutions such as those from Singapore-based Eigencat or Smartfolios which was recently acquired by Finantix. 

Enabling a new model

This is not about ripping out what is already there but working with and enabling it for a new set of circumstances and needs.

What do wealth managers really need? More tools to fill their internal needs are useful, but what really adds value are tools which create the means, intelligence and capabilities to engage and provide value to clients. 

Looking back, the portfolio management process, like much else in this sector, was overly complex and focused on the needs of the internal user. The client never saw any of it over and above an infrequent report and some discussions with their portfolio or relationship manager. 

These news tools not only enhance the existing internal capability but also take it outside to support the critical need to engage clients. The traditional portfolio management system remains as the core, but these will be increasingly serving a new set of tools that drive further value.