investify TECH – leading the way in customised asset management

The megatrend of individualisation is making its way into asset management. This allows clients to give their investment strategy a very personal touch and still leave portfolio management to the capital market experts.

Dr Harald Brock, Managing Director of investify TECH, explains in Private Banking Magazin how banks and asset managers can develop and distribute individually tailored investment strategies thanks to investify TECH’s modular platform approach.

The self-printed T-shirt, sneakers with one’s own initials or the Mini Cooper configured according to personal wishes: customers love products even more when they can design them themselves. This insight from psychology is now also increasingly being used in asset management in the form of modular approaches. This hybrid form of advisory combines essential elements of investment advice and asset management: the client can give his portfolio a personal touch by configuring the investment strategy individually according to his wishes. In contrast to the advisory approach, the client does not make the investment decision independently, but does not have to worry about managing and monitoring the portfolio.

The modular approach differs from the discretionary approach by using a basic or starting portfolio instead of the client advisor defining each individual position separately. The basic investment of shares, bonds and alternative investments, whose initial weighting is determined by the client’s risk profile, forms the starting point for the individual design of the very personal investment strategy.

Starting from the standard portfolio, the bank or asset manager provides the client with a choice of modules that cover topics such as ESG and cyber security, or map regional markets such as Chinese and Swiss equities. If a thematic module is added, so-called fitting algorithms ensure the optimal weighting of the thematic share, the basic investment is either reduced or remains the same, explains Harald Brock, CEO of Investify Tech, a Luxembourg-German technology service provider for digital B2B wealth management in the white-label format. “If necessary, the advisor or client can override the algorithm. The platform gives appropriate indications if the assembled portfolio no longer fits the client’s risk class.”

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The UBS application My Way also continuously monitors risk, structure and diversification of the overall portfolio. The Swiss bank’s modular asset management, launched in 2020 and rolled out in the German market at the beginning of August 2021, is also structured in modules. Currently, 55 individual portfolio modules can be selected, allowing clients to individually weight different regions, sectors and themes.

The minimum investment for UBS My Way in Germany is one million euros. At the start, clients can choose between a classic and a sustainable orientation of their reference portfolio, whereby they can also change the proportion of sustainability aspects as desired afterwards.

The idea for My Way came about in 2017, when a group of UBS employees in Switzerland recognised the change in client demand for individual portfolio design. Until then, the bank had not offered hybrid advisory services. “There was only a choice between Advisory, where the client has the power to decide on their own investment assets, or Wealth Management, where they hand over the investment decision completely to us,” explains Antonius von Verschuer. As one of several My Way product specialists, he trains the German UBS client advisors in the use of the new application.

Modular asset management is in line with the trend towards customisability of banking services for clients

Maerki Baumann has been offering its clients the modular investment solution for five years now. It consists of various investment modules from which the bank can assemble the respective individual investment strategies with its clients. These modules can be supplemented or exchanged over time. The amount of the investment sums can influence the scope of selection in the individual modules. Therefore, there are entry levels. Regardless of age, the demand for individualised products is increasing. Private clients in particular have individual needs, is how Gérard Piasko, head of investment at Maerki Baumann, describes the trend of recent years.

The modular UBS solution in its current form would probably not exist if the group had not stuck to its idea. For at first, the project failed because, in addition to immense IT requirements, the scope of the project also posed hurdles. A new attempt in 2019, without money and resources from the bank, but with an interdisciplinary team and an agile development approach, led My Way to success after all. The pilot project convinced clients and advisors alike and achieved the hoped-for market launch in 2020.

In the meantime, UBS has spent a lot of money on its new wealth management and equipped every client advisor in wealth management with the latest iPad Pro. The investments are paying off. UBS does not disclose any figures at country level, but the development of total inflows is impressive: The invested assets via My Way amount to 5.1 billion US dollars as of the end of September 2021. At the end of 2020, they were still at USD 1.5 billion. The new clients acquired for My Way come from all segments and demographics.

Apparently, modular wealth management hits a nerve due to its individual design framework – as also evidenced by the result of a zeb survey from 2018. According to the survey, 66 percent of bank clients consider the customisability of services to be very important. The art and at the same time the challenge of the modular approach is to allow customers a certain degree of freedom in designing and to manage and process the different portfolio variants on the underlying technology platform. “For most clients, it is enough to be able to exert influence and to receive a strategy tailored to their needs,” says digital expert Brock.

For strategy management, the key to success is standardisation, a term with negative connotations in the banking industry until a few years ago. According to Brock, however, this has changed fundamentally. Today, many boards want standardised processes that help to get a grip on regulation, significantly reduce costs and act in a more agile way. This is another reason why modular asset management is in vogue, because they are standardised in the background.

But don’t individualisation and standardisation fundamentally contradict each other? Not necessarily: “The client does not even notice that it is a standardised product if you set up the modular approach correctly,” says Brock. Without standardisation in the background, the whole concept of modularity does not work. “There needs to be clear rules and processes on how portfolios are set up and how they are Mifid compliant. The key thing for me is that a modular service is not worse than a discretionary one.”

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Modular asset management allows advisors more portfolio design again

Standardised processes also play a decisive role at DJE Kapital. In the background, the same systematic investment process runs everywhere at the independent asset manager, no matter what the strategy. “Every fund and portfolio manager can draw on the same research know-how,” explains Christian Janas, head of asset management. DJE employs 15 in-house analysts who develop and prepare the basis of the specific investment strategies according to the well-known FMM method of the Pullachers – fundamental, monetary, market.

In addition to individual asset management from a minimum investment of 500,000 euros, DJE has been offering the more easily accessible digital variant Solidvest with a minimum investment amount of 10,000 euros since 2017. Here, the digital client can exert some influence on his individually designed portfolio via risk profile and themes. In addition to four investment strategies with different share ratios, they can set priorities and choose from ten thematic areas – including commodities, dividend yields, nutrition, demographic change or brands & luxury. If required, a personal contact is available to the digitally-savvy customer.

DJE man Janas sees a trend in asset management to offer hybrid models to address other target groups: “Not every asset manager can do that, you need certain lot sizes for that – but it is clear to see: Clients want to become more digital and are moving into the hybrid world.” However, to focus only on the digital would be going too far. In the end, the client should decide what he wants. “I don’t have to sell the client a product in asset management. Our task is rather to generate a reasonable return for the assets.”

Unlike DJE, Maerki Baumann is also active in investment consulting. Here, the Swiss private bank is seeing increasing interest from its clients, who invest part of their assets in one or more modules of the modular investment solution. This brings recurring income that leads to more growth.

The modular concept is suitable to replace the time-consuming and, from a regulatory point of view, costly investment advice, also finds Investify-Tech CEO Brock. Despite the simplicity, clients still demand advisor expertise, he says: “Advisors are having more fun with asset management because the modular approach allows more portfolio design again, instead of just selling model portfolios.”

The article first appeared in Private Banking Magazin.