Many software vendors purport to offer personalized investment reporting but dig deeper and these claims are often illusory. Craig Pearson, CEO of Private Wealth Systems, explains why the problem, as well as the solution, is structural.

As financial service providers seek to differentiate themselves and defend against commoditization of advice, they are increasing their focus on providing personalized experiences for their clients. Up until two years ago buyers of financial software had to sacrifice personalization in order to drive scale. But when serving ultra-high net worth individuals, one size never fits all.  

Many wealth advisors define personalization as simply customizing the layout and graphics on a consolidated investment report. Private Wealth Systems has pushed the definition much further by empowering each and every individual with total control to group, structure, and classify their data any in way they want, whenever they want. The company’s award-winning data model, which is a first in the industry, allows wealth advisors to engage each individual client based on that individual’s unique personal needs. What this means for an advisor overseeing investments for a family that has a hundred individual family members across generations or several thousand unrelated clients is that the advisor can engage each family member as an individual and personalize the advice, analysis and reporting based on that individual’s perspective. In so doing, Private Wealth Systems aligns the relationship between advisor and investor in a way that has never been possible before.  

For UHNW individuals, Private Wealth Systems delivers one-touch access to analyze and oversee their investments and managers in an unbiased way so that every wealth owner gets the information they want, in the way they want across every asset class, bank, manager, strategy, theme, mandate, currency and ownership structure. This changes the dynamic of the relationship to something that is relevant, personal, and powerful for every wealth owner.  

Supporting individual perspectives
Let’s say that each family member has a partial interest in a trust and that trust invests in ExxonMobil. The first family member may not question the investment while another family member may want to minimize exposure to fracking. Another family member may feel that ExxonMobil is socially responsible while another family member may feel that it is not socially responsible. The advisor must be able to support each of those individual perspectives and reflect those views in the analysis, reporting, and management of each individual’s wealth.  

For example, classifying ExxonMobil as fracking for one family member but not others would allow that individual to see an increased allocation and exposure to fracking because of her personal views of the investment. A family member could include ExxonMobil in their allocation for socially responsible investing while another family member could exclude it. In working with a large well-known family office, one family member asked if she could call a specific investment “the devil” because of a poor track record on human rights. Although several family members laughed, the answer was yes, you absolutely can use free text to create a title called the devil and associate any investment, manager, theme, account or portfolio as such and analyze your exposure to the devil, as well as track how the devil is performing against peers and custom benchmarks. Supporting individual needs at any level, across any financial instrument and ownership structure allows for a new definition and a new purpose for personalization in private wealth. 
 
Illusory claims  
When it comes to personalization, I see a lot of illusory claims being made in the technology sector which make me worried for the institutions in terms of regulatory and reputational risk, as well as wealth owners who rely on information they believe to be personalized. More alarming, is how tech companies themselves often seem to have completely misunderstood the personalization challenge they are trying to solve. 

Most financial technology companies define personalization in terms of visualization, allowing users to drag and drop charts and graphs. This is because most people buy with their eyes and a visually pleasing user experience goes a long way toward driving market adoption. Visual configurability is important and that is why Private Wealth Systems has introduced its new mobile enhancement allowing users to create their own drag-and-drop digital dashboard across every permutation of allocation, performance, gain/loss, liquidity, drift, fees and expenses and other critical components. Modern, engaging and perhaps even fun though that may be, all this is just window dressing to us. 

The other, very much neglected but truly most important, aspect of personalization is the data itself. Namely, being able to have complete and effortless control over the grouping, the modeling, and the classification at the individual level. 

Many providers often forget that “family office” and “family wealth” are misleadingly homogenous terms for very heterogeneous groups of people. A family office is likely to have multiple advisors, structures, strategies, asset classes, mandates and more - multiple everything. The family itself will certainly represent people spanning different generations, objectives, and world views. Where other software systems fail is not supporting that multiplicity from the perspective of each individual wealth owner. What we should be asking is, what is important to each wealth owner? What legacy does he or she want to have? How is the analysis, reporting, advice and management aligned with that individual legacy?  

Escaping the 1980s structural blueprint   
Really seeing things “from the other end of the telescope” is what true innovation is about, but I see precious little of that. The underlying issue is that every system built since the early 1980s was - and still is - built based on the same fixed data structure. This type of structure prevents personalization beyond simple marketing terms. Fixed or rigid data structures require hard-coded classifications. Other systems do deliver performance by asset class for example or allocation by sector, but those are fixed. What if one person believes ExxonMobil is a large-cap domestic growth company that is green tech and supports racial justice, while another family member adamantly believes that same investment is a mega-cap, ex-US, value company that is not green tech and does not do enough to support racial justice? Historically, one of the family members would be forced to go without the personalization they require or force their advisors to provide custom reporting that creates delays in information, data errors, and an increase in costs.   

So, what makes Private Wealth Systems radically different? Fundamentally, our difference is the foundation of our system. We are the first platform to have eliminated the need for fixed data structures. This empowers each individual to see exactly what they want, when they want, in the manner they want. Do you want to see performance by asset class, sector, style, strategy, vintage year, socially responsible investing categories, risk categorizations, entities, countries, managers or by any custom classification or grouping? No problem. Do you want to call an investment or group of investments the devil and track your allocation and performance for the devil? Easily done. Every individual has dynamic and complete control over their data to see their data on their own terms.  

Personalization with mass scale
However, the success of a software platform is not only its ability to support personalization but to do it with mass scale, delivering a level of speed, accuracy and operating efficiency that cannot be matched. 

To illustrate this important point, imagine that one million UHNW investors all owned shares in Company X, a new European battery car manufacturer, across multiple managers. To ensure the highest level of data accuracy with the fastest processing times a system must only have a single instance of that security from an accounting standpoint. Other financial systems will have a separate instance of Company X per client, per bank or per manager which is why those systems produce material data errors and prevent operating scale. When an investment pays a dividend, has an end-of-day price, spins off a subsidiary or splits its stock, the adjustment must be made once for all one million investors regardless of investor, bank, manager, or currency. One transaction, one entry, this defines true operating scale with the highest level of accuracy.

Now let’s say Company X spins-off NewCo effective today. One bank may reflect that adjustment today, another bank may reflect it two days from now and a third bank may reflect it next week. To ensure data accuracy, Company X and NewCo must be adjusted on the effective date globally regardless of when each custodian makes the adjustment. Other systems that simply report what the custodian reports on any given day generate material errors in allocation, performance, gain and loss which can lead to bad decision-making. You need a system that is more accurate than daily bank feeds because errors erode wealth.

However, every one of those one million investors should have the ability to group, structure and classify Company X (and NewCo) in any way they want in order to analyze their wealth in ways that are most relevant to them.

One from many   
While other systems are content to focus just in the visualization of investment data, Private Wealth Systems has built the digital infrastructure that has proven to solve the structural challenges of personalization and mass-scale for the private wealth industry. If that sounds like a once-in-a-generation transformative technology, it’s meant to.

For more information, visit https://privatewealthsystems.com

This is a chapter from the 2021 edition of Technology Traps Wealth Managers Must Avoid. Click here to download your free copy.