March 10, 2020 | Bryan J. Dori, President/CEO
This article appeared in the Philadelphia Business Journal on March 6, 2020.
The financial services industry has deep roots in Philadelphia, and the largest investment managers in the area are responsible for well over $1 trillion in assets. These managers have seen quite a bit of change recently, and there’s more to come as investment managers in Philadelphia – and across the U.S. – prepare for the richest generation ever.
Thirty-two trillion dollars in wealth is beginning its transfer to a very different generation of investors. Investment managers observe that these new inheritors are focused on making an impact with their money, and they are demanding extraordinary levels of portfolio customization to do so. Already constrained by industry-wide fee compression, investment managers are moving quickly to find ways to deliver this customization at scale.
Technology provides part of the solution, and the industry has moved faster in the past 36 months than it has in the past 20 years in its willingness to adopt new technologies. An example of this is cloud computing. Financial services firms across the globe have transitioned from a skeptical view of cloud computing to a full embrace of the cloud’s proven ability to enable investment product growth and operational scale.
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The compatible technology stack delivered by cloud computing, however, is only as powerful as the information with which the technologies operate. The new investor group is agnostic to investment strategies or products or active/passive classifications. They are far more interested in customization that enables personalized, value-based preferences such as ESG, tax optimization, risk factors, and direct indexing. These customizations require expert research, indexed and readily consumable by technology.
Initially, solutions that married customization information with technologies were siloed and required multiple “passes” of the portfolio to meet all of the investor’s customization hurdles. This caused issues for investment firms whose regulatory bodies demanded exhaustive vendor oversight. Entering into relationships with multiple vendors in order to achieve multi-level portfolio customization posed an administrative burden.
Structured relationships are beginning to emerge to deliver single-contracted-entity vendor relationships across the spectrum of data and technology needed to meet investors’ portfolio customization preferences.
As we look ahead, technology-enabled customization at scale, at fairly low price points and with a narrow vendor footprint, will prove a sustainable investment management operating model that will allow investment managers to maintain and grow assets.
So where do we begin?
Identify the need: Some are questioning whether we really know what will happen when emerging investors inherit. I think we mostly do. The admirable rise in global awareness and empathy, the outspoken desire to live meaningful and impactful lives, the transparency of price and spread information, and the sheer connectedness of the coming generation tell us that this new investor group will not be shy about demanding products that help them meet goals which equally weight financial needs and personal preferences.
Back test the portfolios: Many managers with whom we work are back testing their investment strategies and products to evaluate the potential impact of customizations. While full customization may be the expressed need in the marketplace, the potential performance impact of customizations cannot be left unaddressed. Investment firms are identifying and articulating guardrails designed to help investors to make financially reasonable selections when requesting portfolio customizations.
Meet your new clients: Include extended family in financial discussions so you can begin to assess inheritor needs, and so inheritors can begin to assess your ability to meet them.
Prepare your data / technology stack, and your operating model: Either internally or through a structured outsource relationship, prepare your infrastructure to enable efficient portfolio customization – and the downstream maintenance of customized portfolios as your core strategies or products evolve.
Be ready: I’m thrilled to experience the quickening adoption of new technologies by the investment management industry; it portends great things for the future. And $32 trillion is worth being ready for.
Largest investment managers in Philadelphia: https://www.bizjournals.com/philadelphia/subscriber-only/2019/03/08/largest-philadelphia-metro-area-money.html
$32 Trillion: https://www.businessinsider.com/interview-with-ubs-paul-donovan-on-millennials-and-inequality-2018-1
Meet the family: https://www.familywealthreport.com/article.php?id=183571#.Xhj5fchKhhE
Bryan J. Dori
President/CEO
Bryan Dori, President and CEO of Archer, has guided the company to become an industry leader in operations, technology, and client service. Having spent his career building solutions that streamline every stage of the investment lifecycle, he has transformed Archer’s business by expanding the firm’s scope of services to help managers meet demand for increased customization. Under Bryan’s leadership, Archer was named 2020 winner of the WatersTechnology Best Outsourcing Provider to the Buy Side award and one of the Inc. 5000 fastest-growing private companies in the U.S. In 2021, Archer’s former private equity investor, NewSpring Capital, inducted Bryan into its CEO Hall of Fame. He is often quoted in the news media on financial trends and regularly blogs on Archer’s website.
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