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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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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:
www.financialsimpliciy.com.au
Tel: +61 1300 363 053
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015Mass Porolio Cusomisaion & The Unique Invesor