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The Future of Personalization in Investment Management

Posted by Le Zhang on Apr 5, 2017 2:37:17 PM

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Over the last decade, personalization has fundamentally changed the game in many technology driven industries. Netflix serves recommendations based on your past views, Amazon’s recommendation engine knows your shoe size, pantry habits, and your location. In music, social media (profiles that hold information related to preferences and favored artists) has changed the way music distribution works. Many believe that it is the future of investment management as well. Instrument Capital is a company focused on the concept of “investor-side optimization” that promises to change the methods used in personalized portfolio construction, risk tolerance assessment, and fund curation. 


“Many firms claim they personalize recommendations and allocations,” Co-founder and CEO Le Zhang says, “but really when you look at the questionnaires, besides age and risk tolerance, the portfolio advice is very cookie cutter. Joe A and Jane B, who are the same age and the same perceived risk tolerance, are getting the same risk portfolio even though Joe A works in agriculture, and Jane B works in technology, where the job prospects and factor exposures are very different. On top of that, both may own their own house, but if one is in New York and one is in Idaho, those assets may affect optimal allocation differently.”

She continues, “Often I’ll get up in front of a crowd and ask, who here has a job… most will raise their hand… who here has a house… most will raise their hand… then I’ll ask, who here thinks their financial adviser is using this information in a systematic manner when giving financial advice? And the alarming thing is that people don’t realize that financial advisers don’t have these statistical and software tools to enable them to give this level of differentiated advice.”

Instrument capital is B2B, aiming to help the 700,000 financial advisers in North America alone.

COO and Co-founder Daniel Fetner says that while he worked at J.P. Morgan Private bank, "We spent a ton of man-hours and resources visualizing the various risks and exposures on our clients' balance sheets, and how we could manually construct a portfolio that helps to diversify those risks. IC is effectively democratizing a level of customization that has historically only been offered to the UHNW client segment. By standardizing the process of factoring in a client's real estate and job, Financial Advisors can give clients personalized portfolios without the manual labor that was previously unjustifiable for "smaller" clients."

The other big issue Instrument Capital wants to solve through algorithms is better matching of investment and finance products with consumer needs. “Traditionally, the sales process and function has been separate from the investment management/ risk management side of the business.” She continues, “this has resulted in decisions made on behalf of clients based on intuition and incentives (commissions). We want the decisions to be made based on data and what the customer needs. We’ll know we’ve solved this issue when occupation target date fund products become the status quo, and your employer offers you tailored retirement fund products that account for your situation.”

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This piece was originally written by Instrument Captial and redistributed with their permission. View the orginigal post here

Instrument Capital is bringing personalization to investment management. Their first product lowers customer acquisition costs for banks by helping wealth management divisions generate curated marketing for clients that may be in need of wealth management services. Client data can then be used to generate individually tailored investment allocations. Instrument Capital’s patent pending statistical algorithms are designed to consider occupation, home value, and other critical factors that are missing in current risk assessment frameworks today. The tool guides allocations to help mitigate against a disaster scenario such as simultaneously losing one’s job and financial investments. Learn more at InstrumentCapital.com.

Le Zhang

Written by Le Zhang

Co-founder and CEO of Instrument Capital

Topics: Banking, Finance, Fintech, Startups