HNW advisors see an edge in customized portfolios

Direct indexing, separately managed accounts, and consolidated reporting are keys to winning high-net-worth business, according to research from Cerulli.

As uncertain economic, monetary, and political conditions take the shine off traditional asset classes, wealth firms vying for high-net-worth business are sharpening their focus on customization and private market investments, according to Cerulli.

“Facing uncertainty in today’s economic, monetary, and political outlooks—and the secondary effects of those uncertainties on equities, fixed income, real estate, and other asset classes—strategic asset allocation arguably is more important today than it has been in at least a decade,” the research firm said in a new report.

Against that backdrop, active management and portfolio customization are increasingly coming into vogue among wealth managers looking to provide additional value for HNW clients. That includes direct indexing, which more than half of advisors surveyed by Cerulli (55 percent) said they’re planning to use, are already using, or would employ if they had access.

And while fewer than half of all advisors are using separately managed accounts, Cerulli expects big things for the space as growth in the HNW demographic continues to outpace that of lower-wealth-tier groups, amping up the demand for scalable methods to personalize affluent clients’ portfolios.

With rising uptake of bespoke solutions and private market investments, there’s also a growing need for intermediaries to build robust account aggregation and performance reporting ecosystems.

In 2023, Cerulli found a near-universal embrace of consolidated performance reporting, with the service being offered by 98 percent of HNW practices it surveyed, including 90 percent that promote it as a primary or secondary service. That capability is also a priority for wealth managers, particularly the 31 percent of firms reportedly developing it internally as a way to attract and retain top-tier advisors.

Among many other factors, Cerulli said the growth in performance and account information consolidation is being driven by the trend toward teaming, with the need to align solutions across different financial areas – including financial planning, investing, and banking – emerging as a key priority.

“Additionally, having a more sophisticated performance reporting environment can significantly lessen the barriers to adopting a higher allocation to alternative investments—a top priority across HNW intermediary and asset manager spaces,” the report said.