Embracing Personalized Household Investing: A Must-Have Approach for Financial Advisors

Authors: Joe Smith, CFA – CIO, Art Lutschaunig – CEO

The increasing complexity of modern investment portfolios and the demand for customized investment solutions have given rise to personalized household investing. Financial advisors should embrace this approach to better serve their clients and stay competitive in the industry.

Introduction

As the investment landscape grows more sophisticated, clients are seeking customized solutions to address their unique financial goals and circumstances. One such solution is personalized household investing, an approach that consolidates the management of the portfolios of individual accounts within a household to create a holistic, tailored investment strategy. In this article, we will discuss why personalized household investing is essential today, its benefits, and why financial advisors need to integrate it into their practice.

What is Personalized Household Investing and Why is it Important?

Most advisors agree that the concept of “householding” has been around for several years. Many service vendors have defined householding as either consolidating the reporting on the many accounts in a household setting, or simply tactics to ensure that transactions among household accounts don’t violate wash sale rules.

While those concepts are important, a more recent trend is to focus on the integrity of the investment implementations of all accounts in a household. The goal is to maximize the investment potential of the individual accounts while also focusing on minimizing the aggregate potential risk of the combined household assets and their short and long-term tax costs. Several accounts in a household are often thought to represent different objectives or time horizons, have different dollar commitments to them, and almost always require different tax treatments.  When described as such, the concept of personalized household investing assumes a much more sophisticated texture, and that is relatively new but very significant to wealthy clients.

By viewing the household as a single investment unit, financial advisors can optimize tax efficiency through asset location strategies. This involves placing investments in the most tax-advantaged accounts to minimize the overall near-term tax burden and maximize the long-term after-tax returns. This also allows advisors to better understand how to structure their clients’ multiple accounts to meet varied (and often conflicting) needs and make informed portfolio decisions that align with the client’s stated objectives.

The Growing Demand for Personalized Investment Solutions

As client expectations and market dynamics continue to evolve, the demand for personalized investment solutions is on the rise. As aggregate wealth rises in the U.S., clients are becoming more knowledgeable about investments and are seeking customized, goal-oriented solutions.

Personalized household investing helps advisors redefine their investment management objectives by focusing on achieving the probability of meeting multiple financial goals of the client while being sensitive to short-term and long-term investment risk and taxes. This comprehensive approach ensures that the client’s financial goals and expectations are met while minimizing potential risks and maximizing tax efficiency. This is a clear departure from traditional methods of choosing an appropriate stock to bond mix for the client’s asset allocation and viewing their results relative to the year-by-year risk and return of their investment portfolio.

In a crowded marketplace, financial advisors must also differentiate themselves from the competition and continually offer value-added services. Offering personalized household investing as part of their practice can provide a unique selling point that attracts and retains clients. By implementing this approach, advisors can experience above-average growth rates compared to their peers, solidifying their position in the industry, and ensuring the long-term success of their practice.

Why Financial Advisors Need Personalized Household Investing

Incorporating personalized household investing into a financial advisory practice brings numerous benefits. By adopting a personalized household investing approach, financial advisors can demonstrate their commitment to understanding and addressing their clients’ specific needs. This fosters stronger, more trusting client relationships, leading to higher client satisfaction and retention.

Personalized household investing enables financial advisors to streamline their practice, better allocate resources, and manage each client’s investment portfolio more consistently with the planning advice they are being provided. This results in increased efficiency and scalability, helping advisors grow their businesses.

By implementing personalized household investing, financial advisors will be perceived by their clients as having increased sophistication as wealth managers. This, in turn, allows advisors to maintain premium pricing for their services, as clients recognize the added value and expertise provided by a personalized approach to managing the bulk of their investment assets.

Conclusion

Personalized household investing has become an essential tool for financial advisors in today’s complex investment landscape. By embracing this approach, advisors can better serve their clients, meet changing expectations, and stay competitive in an increasingly crowded marketplace. It’s time for financial advisors to adapt and incorporate personalized household investing into their practice for the benefit of their clients and the growth of their business.