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Wealth Management: Investment Digitalization and Client Satisfaction

Yannis Sardis, 7 September 2021

Our investment world has been functioning in an era of historically low interest rates (thus a near zero return on ‘riskless’ assets, depending on one’s reference currency), extreme asset valuations across most investment classes, an abundance of new investment products and derivative instruments, as well as an exponential growth in technological innovation across industries, including that of finance.

In such an environment, wealth managers of all sizes strive to establish a footprint that may differentiate them from the competition, and consequently allow them to attract a wider and stickier client base.

On the other hand, more than ever before, investment products and services that used to be in the forefront of developments, gradually fall into the (increasingly larger) container of ‘commoditized’ offerings, creating agony to investment professionals who thus continue to seek the next trendy product or offering that may, just may, place them in the ‘buzz zone’.

How can wealth managers systematically improve their client acquisition process and increase their client satisfaction rate? Equivalently posed, which are the top attributes that mass affluent and high net worth clients may assign larger weights to when trusting their lives’ savings and their families’ future financial security to an investment professional?

Portfolio Performance: Mind the Cycle

Some readers may offer a straightforward answer to the aforementioned question, by stating that the obvious single most critical factor to client satisfaction (thus acquisition and retention) is the portfolio’s consistent superior absolute out-performance, or (for the more passive-investing-inclined indexed-funds-based audience) the portfolio’s consistent superior relative out-performance (vs. one’s selected benchmarked index).

However, in a market environment where a prolonged monetary intervention by the world’s Central Banks has completely distorted the ‘natural’ price discovery mechanism (and consequently increased the probability of occurrence of Black Swan events), heightened price volatility across assets is a feature that makes consistent superior portfolio out-performance so much tougher to achieve than in the past.

Consequently, professional money managers should gradually build an offering that is not simply tied up to the last return data point on their reports, but which transparently incorporates the investment process that they follow and the risks they undertake to achieve such a return. This way clients would also more easily differentiate a manager’s short-term luck from his/her longer-term investment skill (achieving both being the holy grail in investing).

Client Preferences: Go Hybrid

In terms of actual client preferences, a recent study by FactSet and Aon showed that wealthy clients wish to be more meaningfully involved in the investment process, via a combination of advisor caretaking and timely access to high-quality market data, portfolio analytics and customized reporting.

The same survey indicates that clients consider digital tools as valuable enablers in the wealth management process, since they increase their overall financial confidence and most importantly allow them to comprehend the alpha-generating and risk management skills that their wealth manager adds in the asset allocation process over the longer term.

The COVID pandemic has changed certain behavioral patterns, by drastically shifting the way that clients wish to interact with their wealth management providers: more advanced digital capabilities and decision-making information of higher quality are in the forefront.

Digital Proposition: Simple Steps

A well-defined digital proposition could help managers strengthen their client relationships and modernize their offering in order to compete (at least for a certain segment of the client opportunity set) with the current plethora of online wealth platforms and robo-advisors used by a large percentage of early (and not only) digital adopters.

Assuming that a manager would already have in place an integrated portfolio management and risk assessment system (do contact us if not), a first step in the digitalization transformation process could simply be the enhancement and clarification of the firm’s client reporting capabilities. Clients often express inability in understanding portfolio performance, especially for more complex structures that contain liquid and illiquid instruments, or where multiple data sources are deployed.

A simple digital ‘tool’ that could be shared with the client is a package of reports that not only states the post-trade performance attributes but also the pre-trade metrics and stress-testing simulation scenarios that the manager deployed to achieve the pre-agreed range of returns, as per the client’s investment profiling.

A digital tool does not even need to be interactive, as even the simplest model parametrization could confuse the non-expert client; the aim of a digital strategy is to use technology to enable clients to be consistently better informed and hence less surprised should adverse market conditions prove unfavorable for one’s asset allocation strategy.

Informed Decisions: Combined Views

The mission of investment managers is not (or should not be) to predict the future, but to manage portfolio positions of high conviction and compliance with a client’s investment profile within a disciplined risk framework.

To provide clients with digital intelligence, managers should provide reports which combine data and metrics from different angles of their asset allocation. We often stress to our clients that portfolio performance should be presented in absolute terms as well as in risk-adjusted ones (using a wide range of risk-related measures), so that they can understand what path was chosen by their manager to reach an agreed performance target. A single percentage presents the end destination, but not the path travelled.

Similar combined views, as the ones that our integrated portfolio management platform offers, could involve a range of stress-testing and risk decomposition scenarios for a wide spectrum of unexpected market shocks, based on the variation of driving factors such as interest rates, price volatility, inflation, and issuer credit rating. Such analysis could also be decomposed at various classifications levels such as asset class, sector, industry, currency, geography and constituent holdings.

This way, one would readily decide with (a data-based) confidence (and not an emotional bias) whether the portfolio risk should be adjusted to the prevailing market conditions.

Conclusion: Mutual Benefits

In times of such heightened uncertainty, managers and clients alike should use any collaborative digital tools to strengthen their collective sharpness and investment reflexes.

By establishing a solid digital proposition, managers increase their chances for asset acquisition and retention, across the spectrum of client segments, from the mass affluent to the high-net-worth individuals.

Admittedly, no single digital application, no matter its high quality, will solely raise assets or retain clients; its suitable and sustained use, however, may earn a wealth management firm satisfied and well-informed clients for the tougher times to come, especially if one focuses on multi-generational wealth management servicing (including family office operations).

FINVENT Software Solutions is a provider of financial software applications and custom engineering services. The award-winning KlarityRisk platform specializes in investment risk analytics, risk decomposition analysis, stress-testing simulation methodologies and fixed income performance attribution reporting, and it is offered to Private Wealth institutions, Asset Managers, Hedge Fund Managers and Family Offices.

Would you like to know more about our Portfolio and Risk Management solutions? Please contact us at and we will get in touch.