Issue link: https://resources.envestnet.com/i/1527485
This market volatility caused prices to fluctuate rapidly and unpredictably—leading to increased uncertainty and anxiety among investors. Unfortunately, studies suggest that investors do not fare well when confronted with volatility of this nature. While the adage says buy low, sell high, as a group, investors actually tend to do the opposite. A famous 2007 study, titled "What are stock investors' actual historical returns? Evidence from dollar-weighted returns," conducted by Ilia Dichev, a professor of accounting at Emory University reinforces this. In his study, Dichev, analyzed the investment behavior of individual investors and the impact of their buying and selling decisions on their investment returns. He found a "behavior gap" whereby individual investors tend to buy high and sell low, resulting in lower investment returns. This poor market timing leads to even worse returns than the index averages suggest. If investors suffer the drop in return, bail on the market and don't get back in until the upswing is already in motion, they have more money in the market to experience the loss and less to experience the gain. This leads to a phenomenon of lower investor returns relative to reported time-weighted returns. A key contribution of the financial advisor is to help the client avoid falling into this trap. How may an advisor potentially accomplish this? We believe custom tailored portfolios, incorporating individual tax considerations and other personalized factors can help the client to maintain a disciplined investment approach during the bad market, and avoid locking in the losses. A 2016 Vanguard research paper titled "Putting a value on your value: Quantifying Vanguard Advisor's Alpha," found that personalized advice and portfolio management can potentially lead to higher returns and lower risk for individual investors. This same study found that investors who received personalized advice tended to have more diversified portfolios, which also helpe to mitigate the impact of market volatility. But how many firms are prepared to deliver on this promise of personalized portfolios? Personalization at Scale: A Path Forward Set against these backdrops of the Great Wealth Transfer and market volatility testing investor fortitude, firms would be wise to consider solutions that facilitate hyper-personalized solutions and technology platforms that enable these capabilities at scale. This paper explores the concept of personalization at scale in wealth management, its potential benefits, and the challenges it poses. Why Personalization and Personalized Experiences Matter Today, we live in an overwhelmingly digital world, one which has created a new set of expectations around personalization, speed and convenience, and transparency. These digital technologies make it easier than ever to collect and analyze data on consumer behavior and preferences, allowing businesses to offer highly personalized products and experiences tailored to individual needs and interests. 67% of consumers say it's very important for brands to automatically adjust content based on customer context and 42% get annoyed when content isn't personalized. A study by Vanguard in 2016 found that personalized advice and portfolio management can lead to higher returns and lower risk for individual investors © 2023 Envestnet, Inc. All rights reserved. For one-on-one use for client's Financial Advisor only. 4