The days when closely tailored investment and wealth services were for those at the top of the pyramid are passing as new tools widen access to such capabilities, a report by the index services group says.

A report by MSCI, based on a survey of 220 wealth industry professionals worldwide, finds that 60 per cent of them expect their HNW clients to need a degree of personalization.

Personalization has been mainly a niche offering, reserved for the wealthiest clients. But MSCI said its research suggests that this service is no longer a luxury offering but a standard requirement.

The focus on personalization, or customization, comes at a time when the wealth industry has at times struggled to fully serve the mass-affluent market and deliver, at scale, services that suit individuals’ specific demands. (See an article on the topic here.)

Findings
MSCI’s findings came in its latest Emerging Trends in Wealth Management report. Among the results was that 73 per cent of respondents named personal preferences – such as supporting the transition to net zero or better corporate governance – as the prime reason why wealth clients are seeking more personalized solutions. Some 58 per cent said it is easier to build a new custom model than modify an existing one.

“The demand for personalized portfolios is growing across all client segments, from high net worth individuals to emerging affluent investors,” Alex Kokolis (pictured), global head of wealth at MSCI, said. “A broader set of clients now expect personalization in all aspects of their lives, including financial services, driven by trends in other industries.”

Across all regions, wealth managers expect to allocate more client money (82 per cent on average) to private assets over the next three years. However, as interest grows in private markets, advisors (21 per cent) and portfolio managers (40 per cent) view their solutions for this asset class as insufficient – compared with 59 per cent of investment teams.

Roughly half of all respondents (45 per cent) reported a limited understanding of private assets as the biggest barrier to making higher allocations. Other notable barriers were the illiquid nature of investments (52 per cent) and the lack of transparency into the asset class (46 per cent) – with fears being notably higher among financial advisors (73 per cent and 59 per cent respectively) as they seek to meet client demand for greater assurance and visibility.  

MSCI, which produces indices of market performance, has pushed further into the private markets arena, bringing out a set of measures to track a sector that has sometimes been opaque, to give investors a common yardstick for comparing how different asset classes fare. A number of major firms have increased their involvement in the private markets area, such as BlackRock with its purchase last year of research firm Preqin.

“In private assets, wealth management firms may be able to differentiate themselves through their education and learning offerings just as much as their investment offerings – both for advisors and end clients,” Joseph Wickremasinghe, an executive director at MSCI Research, said. “Beyond that, tools or frameworks to standardize or streamline the due diligence process for private asset investments, or perhaps access to a slate of pre-vetted investment opportunities, may be another solution that end clients find appealing. Being able to choose specific private investments from a selected range that has been deemed appropriate for the size of their allocation, their broad liquidity needs and investment preferences could increase their level of comfort with this asset class.”

Tech
Technology is at the heart of enabling transparency and personalization, MSCI said, but the survey suggests that respondents feel many of their current solutions need to be upgraded to allow them to satisfactorily meet HNW clients’ expectations, it said. 

When asked to rank the areas in which their current technology solutions fall short, advisors who monitor client portfolios manually came in top at 45 per cent, followed by 42 per cent reporting a lack of dynamic insights on taxes, risk and other elements that impact decision-making.

“The demand for investment transparency has evolved significantly beyond simple monthly position reports, as today's wealth clients seek deeper understanding of their investments' alignment with personal values and financial goals,” Dhruv Sharma, an executive director at MSCI Research, said. 

Considering how inclusion in an MSCI index, such as the flagship World and Emerging Market indices, can have a material impact on share prices and asset allocations, the move into the private markets area by groups such as MSCI is significant. Just as ESG investing has spawned a raft of new indices, now it’s the turn of private markets. As soon as new indices spring up, they can then be used as building blocks for entities such as exchange-traded funds, for example. The recently-launched MSCI private market indexes are constructed from private capital funds with over $11 trillion in capitalization.