Shifting risks and a wide range in risk tolerances across clients are driving demand for customized portfolios. Advisors anticipate that increasing client demand for greater tax efficiency, including the adoption of tax harvesting strategies and interest in owning individual securities, are key elements driving the demand for greater customization. Advisors also cite a need to manage concentrated positions to mitigate idiosyncratic risks as another important factor driving this trend.
Once an advisor has constructed a client’s portfolio, most of the changes they make to the portfolio’s asset allocations are due to changes in the client or the macroeconomic risk landscape. Most advisors (83%) say a change in client goals or risk profile is a very important consideration when adjusting client asset allocations, while six in 10 advisors (61%) also see changes in market outlook as very important.
Since macroeconomic risks influence portfolio customization, analyses that help automate or scale responses to common threats could prove useful for adjusting customized portfolios at scale. However, only a quarter of advisors find shifts in home-office models as very important in driving any changes in their clients’ asset allocations, and fewer than one in five (19%) believe third-party models are very important for this purpose.