Personalizing DPM Portfolios - Towards a Customer Segment of One

November 18, 2021
Personalizing DPM Portfolios - Towards a Customer Segment of One

One of the first business lessons we learn in life is that the customer is always right. In today’s world, that mantra has broadened to give us the notion of customer-centricity - the desire to precisely address the customer’s preferences and expectations. Typically, underlying this focus on the customer is some form of digital transformation - that is, a drive to use technology to understand behaviour and then automate the delivery of personalized services to large numbers of customers. In modern marketing parlance, this is the attempt to target a segment of one customer, as opposed to the bulky demographic groups of old. 

This all sounds great in theory but things can look very different in practice. In financial services, digital transformation is a huge topic covering a vast range of possibilities - encompassing everything from payment hardware to replacing 1970s legacy infrastructure. There are certain projects however that can break down digital transformation into manageable, self-contained chunks. Where Discretionary Portfolio Management (DPM) is concerned, the emergence of personalized portfolios is one such example - a relatively straightforward transformation project that gives more customers access to customisable options that better reflect their preferences. 

Asset management and investment firms have a number of options for introducing personalized portfolios into their service offerings. The experience can be advisor led -through giving relationship managers access to the standardized processes of a robo investment journey. Or the recommendation engine technology can be used to serve customers directly with portfolio selection capabilities. Whichever route the organisation pursues, the results are that the financial institution can scale DPM capabilities to serve more customers with a digital-first wealth management experience. 

The foundations of the personalized portfolio wealth management journey is the customer profile, and three aspects in particular: their appetite for risk, wealth management objectives and preferences for portfolio composition. 

The process begins with a series of questions to determine the risk profile and investment goals. After that, comes the smart part with the customer assembling the portfolio according to their individual preferences. Clients select investment components that are pre-created portfolios. These can be packaged according to geographies, investment themes, types of assets or more - for instance, allowing customers to choose from options such as Hong Kong equities, ethical investments, technology stocks or managed funds. These components - with each of them being managed on a discretionary basis - can be added to the portfolio via a simple tap. 

At Quantifeed, we have already deployed this type of service for financial institutions, which have made more than 70 investment components available to global customers. The end user can determine the percentage to allocate to each investment block and there are a small number of reference portfolios that the personalized portfolios are pegged to. Customers are allowed to deviate to a specified extent but there are guardrails there to protect both them and the financial institution, for instance if they’ve taken on too much risk or are in danger of becoming over-leveraged. The risk assessment is carried out automatically and measures against risk exposure, recommended asset allocation and diversification.

Indeed, the final stage of the portfolio customisation process is a screen providing a consolidated portfolio health check. This consolidates assets into single portfolio views and creates projections based on customer circumstances. Just as a health-tech app or fitness watch will provide an overview on how an individual’s exercise, eating and sleeping patterns are combining to affect health, the recommendation engine makes a similar evaluation of the customer’s investment choices and advises on any required course correction. It identifies
areas of weakness across a range of metrics - such as asset allocation, single stock or single manager exposure - and suggests ways of addressing gaps and correcting imbalances. 

Customers also receive data on historical and projected performance. Financial institutions can configure the system to set limits and issue alerts as prices shift and the portfolio evolves. 

What’s more, the technology is ready to go now. Using a comprehensive set of APIs, banks, insurance companies and wealth management firms can plug these capabilities into existing infrastructure. Quantifeed’s recommendation engine, the basis for introducing tailored DPM portfolios, can deploy in any environment - cloud, hybrid or on-premise - and is cross-platform compatible between Linux and Windows, making digital transformation easy. And we are able to design, develop and deploy new investment journeys extremely rapidly, within as little as three months for one customer. 

Our AI-driven wealth management engine offers a host of benefits for financial service providers. It delivers the digital-first, interactive experience that today’s customers expect and institutions are striving to provide; it supports solid portfolio construction while allowing customers to express their personal preferences; and, most importantly for the business, it enables it to scale its DPM capabilities and serve more customers with higher value services - whether by empowering advisors to deliver a more compelling investment journey to clients, or enabling private clients to directly construct their own personalized portfolios.