mass portfolio customisationa and the unique investor

8/10/2019 Mass Portfolio Customisationa and the Unique Investor

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Mass Porolio Cusomisaion& The Unique Invesor

Insis on yoursel; never imiae... Every grea man is unique.

Ralph Waldo Emerson(1803 - 1882)


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01Mass Porolio Cusomisaion & The Unique InvesorCopyrigh Financial Simpliciy Ausralia Py Ld 2012

No long ago, 165 consumers engaged in a sudy o assess preerence

diversiy in deermining an ideal wris wach. Paricipans were given a

lis o basic cusom opions wih which hey could deermine heir opimal

design. Alhough he lis o cusom choices was brie, 165 paricipans

produced 159 variaions.

This anecdoe, one o many abou he appeal o cusomisaion,

underscores he imporance o consumers o uniqueness. I emphasises

a ready marke or hose companies ha can genuinely saisy consumer

desire or personalised producs and services.

Sudden, undamenal shifs in operaing proocols can occur in every

indusry secor. The resuling shocks demonsrae he exen o he gap

beween our collecive knowledge and he dynamic inormaion pool we

mus synhesize in order o expand our operaing capaciy.

Across he global business specrum, enlighened companies are engaged

in adding a new uni o he corporae knowledge pool: mass cusomisaion.

In isolaion, cusomisaion reers o he process by which individualconsumers can ailor a produc rom apparel o auomobiles o heir

personal needs wihou paying cusom-buil prices. By exension, mass

cusomisaion reers o he abiliy o organisaions o replicae his

process on a very large scale. The commercial possibiliies implici in his

expanded and scalable - approach are limiless.

Whils he magneism o mass cusomisaion had is genesis in he as

moving consumer goods secor, is poenial exends seamlessly o he

global wealh managemen secor. Afer all, why should consumers no be

able o manage heir invesmen porolios via heir iTunes accoun?

Inroducion


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1. Mass cusomisaion considered

i. Mass customisation addresses parallel consumer needs

Consumer conrol is core o mass cusomisaion. This moivaion reveals he scope

o mass cusomisaion as a powerul financial services ool. Sill a relaively new

paradigm, mass cusomisaion provides consumers wih he means o achieving

variey and individual ailoring hrough flexibiliy and heighened responsiveness.

I exchanges he radiional ocus on price or a prioriy placed on he consumers

individual needs and wans a an affordable price poin. The abiliy o make imely

porolio adjusmens wihou incurring radiional high ees associaed wih

swiching - is paricularly compelling in he conex o coninued financial markeuncerainy.

Mass cusomisaion provides companies wih novel opporuniies o differeniae

heir producs and services in increasingly crowded markes. Many consumer

surveys, conduced across a range o indusry secors, sugges ha he increasing

abiliy o consumers o cusomise heir own producs has creaed a undamenal,

and permanen, shif in heir expecaions, seting a new bar. Wihin he wealh

managemen indusry, should players no be able o clear his new bar, hey may

miss ou on consolidaed, susained commercial benefis ha ouweigh he iniial

expendiures required by new echnologies. The commercial ension beween iniialspend and evenual gain is discussed in greaer deail in Secion 2.

Typical atribues o a mass cusomised operaing environmen include:

Personalised preerences embedded in cliens own unique produc or service

profile

Blended modular componens o saisy unique and dynamic consumer needs

Defined sysem o macro processes wih micro flexibiliy o allow unique rules

aciliaing coninuous adherence o compliance requiremens

Inegraed business processes o eliminae radiional divisional silo approach

o cusomer service

Inormaion eedback loops embedded in process srucure o ensure new and

enduring componens reflec changing consumer requiremens


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ii. Mass customisation cuts both ways

Proaciviy is key o he mass cusomisaion paradigm. However, in order or hebenefis o mass cusomisaion o be susained, his creaive energy mus flow

consisenly rom he consumer o produc provider and back again in a coninuous

loop. This process is illusraed in he diagram below.

Figure 1.

iii. Empowering consumers

Several acors are driving, and enabling, he mass cusomisaion rend. Specifically,

broadband Inerne has aciliaed consumer access and ineracion. Consumers

are now able o access heir services whenever hey wan and expec an increasing

range o online ailoring ools rom which o selec. Technology advances are

reducing he expense and difficuly associaed wih cusom design o goods and

services. As a single example, Dell Compuers allows is cusomers o upload heir

personal graphics o is websie a he ime o purchase in order o personalise heir

lapop covers o sui heir personaliy or needs.

The rise o user-generaed conen, combined wih he prolieraion o on-demand

purchasing in he conex o social media disribuion channels allows consumers o

speciy and receive exacly wha hey wan. Furher, consumers ensure ha heir

on-line social groups, already o impressive scope and ever-increasing dimension,

are collecively aware o how hey rae new producs or services. Collaboraive

communiy dialogues help o uel he demand or cusomised producs and services.


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Today, however, innovaive, ineracive echnologies can aciliae auomaic

ineracion o consumers and service providers wihou accompanying prohibiivecoss. Individual consumer requiremens are deployed using auomaed sysems

which perorm required calculaions wihin a fixed soluion space: one characerized

by sable bu sill flexible and responsive processes. Mass cusomisaion no only

aciliaes a more personal sake in he oucome o produc or service design, i also

ensures ha he highly oucomes can be replicaed on a large scale.

In a world o declining margins (combined wih increasing clien expecaions), real

income can be difficul o predic and susain, paricularly in changing economic

environmens. I a wealh managemen business canno simulaneously balance

consumer demand or personalised services wih he commercial demands oscale, is long-erm susainabiliy becomes virually impossible. Thereore, mass

cusomisaion is he absolue key o growh in financial services reailing.

2. Opporuniies presened by masscusomisaion o wealh managemenIn 2009, Forreser Research issued a repor highlighing ha consumers who

acively seek cusomised producs end o be significanly younger, beter educaed,

and wealhier han he average shopper. Oher, more recen sudies sugges hayounger consumers raised on FaceBook, Twiter, MySpace, iTunes and personal

blogs avour shopping in he world o infinie choice promised by e-commerce. How

are hese experiences, and resulan expecaions, shaping demand or wealh

managemen producs and services?

i. Multiple stakeholders enhance the opportunities inherent in mass

customisation

An imporan poin o noe is ha mass cusomisaion does no sacrifice speed, nor

design, efficiency. In poin o ac, in a mass cusomisaion scenario, echnology-enabled economies o scale permi producs and services o be ailored quickly or

individuals (or niche markes) a raes superior o mass producion efficiency and

speed.

However, even more compellingly, a paradox o mass cusomisaion is is abiliy o

hrive in an environmen o ever-increasing variaion. Whils cusomisaion, per se,

can become weakened by muliple demands, he echnology code supporing mass

cusomisaion has been writen o suppor increasing personal alernaives. Mass

cusomisaion is no consrained by personal preerence. Raher, i eeds on i.


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Employing a wealh managemen perspecive specifically, an associaed benefi o

mass cusomisaions embrace o increasing variey is he abiliy o inroduce moreparicipans ino a supply chain wihou increasing cos. Again, due o he ways in

which mass cusomisaion sysems have been developed, he more paricipans one

inroduces ino a produc developmen, or service suppor, supply chain, he more

effecive he oucome. Thereore, he more sakeholders and he more variaions

required, he more powerul he echnology becomes.

O paricular noe or wealh managemen paricipans is he consequen abiliy

o develop a genuinely ineracive, and ieraive, supply chain. An example o how

his migh look in pracice is illusraed in he diagram below. Again, emphasizing

he poin made in he previous paragraphs, i should be noed ha he number osakeholders is no resriced o hose included in Figure 2. Mass cusomisaion

rewards a fluid, and growing, number o paricipans: In an era o specializaion and

rapid change, his is imperaive or effecive business growh.

Figure 2.


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i. Challenges facing investors and their wealth advisors

Whils he challenges acing invesors and heir wealh advisors are divergen,he soluions need no be muually exclusive. Alhough global financial markes

may have recovered in par since he Global Financial Crisis o 2008, he negaive

psychological impac rom such a severe global capial markes conracion remains

srong. Wihin he urbulence o global markes, invesors are looking or a means

o filering he noise wih a clear approach o managing heir long-erm invesmen

sraegies.

Many invesors have los loyaly, rus and confidence in he wealh managemen

indusry. The average wealh invesor seeks greaer simpliciy and ransparency. In

oher words, Is my money. I wan o undersand wha Im invesing in and how much

Im paying! Emerging reail invesors, paricularly he younger generaion whose

social neworks are vas, immediae and influenial; eel ha he objecive o mos

wealh advisors is o separae hem rom heir hard-earned savings. As a resul,

whils Ponzi-ype schemes and rauds have been perperaed oo requenly, a ar

greaer number o invesor porolios suffer rom benign neglec.

Wealh advisors hereore ace he challenge o heir collecive abiliy o build

rus and demonsrae value o wary invesors who are realizing now ha hey

can, and should, be receiving individual atenion or heir invesmen porolios.

Alernaively, invesors can, and do, buy commodiy producs elsewhere and on-line.

However, many wealh advisors oday lack effecive ools o implemen porolio-

specific decisions quickly and cos-effecively.

A reurn o he basics o managing an individuals well-being is criical: wealh

advisors seeking o remain relevan mus align heir ineress o hose o heir

cliens and ensure ha each cliens individual requiremens are addressed. The

resul is a ailored, ransparen porolio co-managed by he clien and wealh

advisor in genuine parnership.

ii. Benefits of consumer ownership in the portfolio managementprocess

A growing prioriy or invesors is achieving genuine undersanding and conrol over

heir invesmen porolios. Tradiionally, he abiliy o achieve his on a susainable

basis has required significan commimens o invesor energy. Alhough rus is

sill a significan driver in wha makes wealh advice valuable, wha invesors really

wan is personalised advice which is relevan or hem, abou hem, ailored o heir

wans and ears, and fis like a glove, heir glove. Greaer access o ailored porolio

managemen experise and operaional efficiencies can combine o improve clien

service.


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Cusomised valued-added services assis in clien atracion and reenion.

Invesors gain rom cusomizaion he incremen o uiliy o a good ha beterfis o heir needs han he bes sandard produc atainable. The larger he

heerogeneiy o all cusomers preerences, he larger is his gain in uiliy. From a

managerial poin o view, cusomizaion can be carried ou wih regard o fi, syle,

and uncionaliy.

iii. Wealth advisors and wealth management businesses of choice

From a sraegic perspecive in wealh managemen, mass cusomisaion is a

differeniaion ool ha can help atrac and reain cliens. The same hinking can

be applied o wealh advisors, reail and insiuional. Whils sel-direced invesing

channels are growing as many invesors op-ou rom using wealh advisors hacan only offer a one size fis all approach, many experienced or ime poor invesors

preer o ousource heir porolio managemen o a proessional wealh advisor.

In responding o he increasing demand or cusomised services, wealh advisors

need o evolve heir wealh managemen businesses rom purveyors o reurn-

oriened invesmen producs o ha o porolio consulans. To remain atracive

and relevan, heir uncion mus include design and managemen o dynamic

invesmen porolios ha consider each cliens specific pracical and emoional

rules, preerences and consrains. In oher words, he orward-hinking wealh

advisor can address he invesor who requires a prudenly designed invesmenporolio, no jus a compilaion o invesmen ideas!

These paricular benefis o mass cusomisaion o wealh managemen businesses

include:

Enhanced clien saisacion and repea business due o a beter response o

consumer needs

Greaer conversion o inquiries o sales due o ewer compeiive offerings

Capaciy o access a wide and ragmening marke

Abiliy o deermine a marke leadership as a resul o clear consumer value

Higher reained earnings driven by greaer value added a a lower operaional

cos


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Mass Porolio Cusomisaion & The Unique InvesorCopyrigh Financial Simpliciy Ausralia Py Ld 2012

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3. Inegraing mass cusomisaion inowealh managemenMass cusomisaion is a concep wih inuiive appeal or business. I provides

consumers wha hey wan how hey wan i. And why would consumers no wan

invesmen producs ailored o heir specific needs, especially in he emoionally

charged area o personal invesmen. However, high-profile implemenaion ailures

hrough flawed sysems and mehods have caused some companies o lose ineres

in he approach. As a resul, here are hose who consider mass cusomisaion

ascinaing bu impracical. This is where he imporance o echnology wih

perspecive is paramoun.

i. Operational excellence the importance of supply chain

management

Mass cusomisaion echnology deploys sable processes o deliver high variey

services in a single, repeaable line. As a resul, associaed cusomisaion allows or

a cos-effecive price or all sakeholders. As oulined earlier, a mass cusomisaion

environmen can handle effecively muliple sakeholders in a supply chain. Indeed,

rom a commercial perspecive, i is in his scenario ha mass cusomisaion really

comes ino is own.In manuacuring, here are several ways approach cusomisaion. In wealh

managemen, each o hese approaches is combined o provide a flexible

mehodology ha is a once modular, muli-dimensional and reversible. This

combinaion o applied manuacuring echniques resul in a sysem ha is scalable

and susainable.

Cenral o he process is a Rules Based Sysem is required o combine criical

componens (read cusomisaion) a he poin o execuion. To be pracical

cusomisaion mus precede uniorm implemenaion o porolio decisions.

Drawing on porolio decision-making echnologies, an effecive sysem also

provides a cenral poin o reerence or ideniying, inerrogaing and validaing he

rules as well as or heir coninued re-use.


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Operaional excellence, achieved by ocus and execuion, can bege excellence in

clien service. I clien ocus is enhanced and execuion capaciy improved, beteroucomes are achieved on a scalable and susainable basis. In porolio mass

cusomisaion, consumers become acors wihin he porolio design process.

They are firs engaged in dialogue o design heir unique producs or services ha

precisely mee heir requiremens. Hundreds (or housands) o invesors, each wih

heir own preerences, can have heir porolios updaed in a single keysroke. Wha

he clien sees is a compleely curren porolio, consisen wih his or her specific

requiremens. Wha he wealh managemen firm sees is a single, ieraive process

resuling in less manual operaions, more secure ransacions and sreamlined,

single operaion reporing.

ii. Expanding the digital footprint harnessing a clients unique

investment tune

Insoar as he wealh managemen indusry is concerned, one o he mos

proound developmens in recen imes is he enabling o invesmen advice on

iTunes. Commening on he launch o is Insighs podcass on iTunes in November

2010, J.P. Morgan Funds said is own cliens rely on digial resources o say up

o dae, research producs, and connec wih heir cliens. Programs such as

hese have urher implicaions in a social media conex in which invesmen

advice (and, imporanly, service providers) can be discussed and reviewed almos

insananeously by increasingly large groups.

To his end, iTunes has commited o increasing is digial ooprin o ensure

inegraion o is conen wih many diverse places is cusomers are gahering

inormaion. Aside rom apparel and social neworking, invesmen sies appear

o be a logical nex marke secor in his increasingly muli-dimensional reail

symbiosis.

This has paricular relevance o he wealh managemen indusry which remains

hosage o produc-driven sraegies as opposed o embracing personalizedinormaion ools o aciliae he achievemen o individual goals. I speed is

paramoun in adaping a cliens invesmen porolio, he echnology o achieve his

is no longer a luxury bu, indeed, a necessiy.


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Ficion has been removed rom he science and we have he echnology capaciy

righ now o implemen noable advances in consumer convenience. Examples ocurren consumer-direced echnologies wih immediae relevance or invesmen

porolio managemen include:

invesmen opions available hrough a Personal Digial Assisan (PDA) which

is in regular communicaion wih he sock marke prices and, when required

communicaes wih he insurer

cars auomaically communicae wih insurers and loss adjusers afer being

involved in an acciden

airlines page passengers wih personalised fligh inormaion

iii. Leveraging the social footprint the rise of social media with

investment advice

The defining atribues o social media are speed and coverage. A he ime o

wriing, Facebook esimaes i has more han 800 million acive users. According

o Facebook, more han 50% o our acive users log on o Facebook in any given

day [and] every monh, more han 500 million people use an app on Facebook or

experience Facebook Plaorm on oher websies. The increasing power o social

media, o which Facebook is bu one o many available disribuion channels, has

become increasingly clear in recen monhs. Siuaions as diverse as locaing los

relaives ollowing he Tsunami in Japan o remaining abreas o he Unied Naions

effors in global crises have been aciliaed, and uelled, hrough social media. No

opic is beyond bounds.

In his conex, wealh managemen firms are posiioning hemselves on social

media sies, offering inormaion hrough blogs, webinars and insan messaging.

The significance o mass cusomisaion echnology, which enables invesor

consumers o effec porolio adjusmen quickly as a resul o on-line cha and

communiy impeus, is clear and compelling.


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Conclusion

Whils more companies are exploring mass cusomisaion as a means o capuringprice premiums and securing marke leadership, ew organisaions in he wealh

managemen secor have genuinely availed hemselves ye o mass cusomisaion

principles.

Despie he significan economies o scale offered by mass cusomisaion, many

firms remain relucan o commi financial resources o uncerain oucomes . The

perceived scale o financial oulay is a deerren o acion wih so many compeing

budge pressures. Despie he promise and atraciveness o cusomisaion, here

are hose who baulk a he percepion o paying or oher peoples uniqueness.

However, given he significan power o social media and he clear direcion o

consumer reail rends, is i simply a mater o ime beore mass cusomisaion will

be a mandaory eaure o porolio managemen? As a resul, does a compelling

firs mover opporuniy exis also? Somehing o ponder indeed whils reviewing

sock prices and ranserring unds rom one accoun o anoher on ones smar

phone.


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About Financial Simplicity

Financial Simpliciy is an inernaional wealh managemen plaorm echnologyprovider domiciled in Ausralia wih offices in London, UK. As a proven provider o

scalable mass ailored porolio managemen echnology or wealh managemen

plaorms, Financial Simpliciy excels in he disciplines o modeling, consrucion

and compliance.

Over he pas decade, Financial Simpliciy has developed dedicaed echnology

o aciliae he process o highly efficien and scalable porolio consrucion,

managemen and implemenaion. Financial Simpliciys unique approach o

porolio decision-making has been acknowledged as he mos effecive way o

consruc, and perec, model porolios or dynamic porolio managemen.

Financial Simpliciys echnology has been conceived, designed and developed o

align he ineress o invesing cliens and heir wealh advisers in a susainable,

cos effecive manner. Our echnology is he engine powering managed accouns

programs a some o he worlds leading wealh managers, adminisraion plaorms,

sockbrokers and pension providers.

For urher inormaion conac Financial Simpliciy a:

[email protected]

www.financialsimpliciy.com.au

Tel: +61 1300 363 053


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015Mass Porolio Cusomisaion & The Unique Invesor

mass portfolio customisationa and the unique investor

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