Personalization can significantly enhance client satisfaction and advisor success in today’s wealth management ecosystem. Financial advisors can foster deeper relationships and higher retention rates by tailoring investment strategies to match each client’s unique financial goals and tax situations. This isn’t news.
However, thanks largely to the evolution of key investment vehicles and revolutionary technological advancements, advisors can—and should—provide this kind of service at scale. Clients deserve personalized investment strategies that better support their goals—and advisors should demand access to the tools that enable them to do so.
Even with these major improvements to scalable solutions, most investors are not leveraging tax optimization. Perhaps due to their reluctance to offer expertise in such a complex area like taxes, Advisors often overlook this incredible opportunity to enhance the client experience. While advisors often suggest tax-loss harvesting, much more can be done.
Tax Optimization
The next frontier for tax optimization goes beyond tax-loss harvesting and applies new technologies to understand a client’s entire household better. We have seen promising opportunities present themselves in our solution set.
However, too many wealth management professionals ignore these opportunities to optimize after-tax returns, missing what we believe is a crucial element of effective investment management. This may be due to their fear of providing advice in an area seen as outside their expertise, but more work must be done.
The industry needs to enhance further and evolve its backend infrastructure to enable this kind of personalization and reporting. Additionally, as of now, there is no industry standard definition of after-tax returns. We must do more to develop reporting modules that are broadly accepted and understandable.
I fully expect that as this technology becomes more broadly available and in higher demand, regulators will need to intervene to ensure that these approaches serve clients’ best interests.
SMAs and UMAs
The use of separately managed accounts has increased significantly, further driving personalization. According to Cerulli Associates, SMA platform assets surged 28.7% year-over-year to approach $2.4 trillion. Cerulli expects these programs to reach $3.6 trillion by 2027.
However, unified managed account platforms—another key venue for SMA distribution—have also experienced strong growth. Cerulli data shows that SMA strategy assets within UMA platforms grew 32.6% year over year to reach $890 billion. These tools can provide additional control for advisors while offering clients a more personalized and diversified investment vehicle.
Advisors on a fast-growth trajectory should also consider a tax-managed unified managed account framework, which can make tax and portfolio management more efficient and may lead to better client outcomes.
While equity SMAs are typically delivered as models, fixed-income allocations are usually manager-traded. We believe UMA technology is the key to incorporating multi-discretionary capabilities that enable a broader spectrum of strategies to be combined into a single account.
These are just two of the significant leaps we’ve watched financial advisors at RIAs and broker/dealers make when they have access to advisory solutions that put them in the driver’s seat. As we continue to see advancements in technology and the application of AI, personalization will likely advance further.
Technology will enable additional personalization at scale, and firms will need a partner that can deliver customizable solutions for a massive number of clients. Advisors need their firms to invest in tomorrow’s tech today.
Rob Battista is Senior Vice President and Head of Advisory Solutions at Vestmark.