"Money managers absolutely are looking to offer mass customization. The topic has been coming up a lot in conversations with money managers over the past five or six years" and the pace of adoption is quickening, said Jeffrey A. Levi, a Stamford, Conn.-based principal at Casey Quirk, a practice of Deloitte Consulting LLP, which advises money managers.
"Mass customization is the future of financial advisory, and it's a big area of growth for wealth platforms that want to offer a suite of SMA and model portfolios," Mr. Levi said.
Model portfolios are multiasset portfolios created by money managers, consultants and financial intermediaries to meet investors' goals and/or their risk tolerances.
In addition to investor demand, another strong driver behind the growth of personalized investments is the industrywide move by financial intermediaries toward fee-based asset growth, which includes advisory services for investors, and away from commission-based retail investment management, Mr. Levi said.
He added that the changing landscape of the retail and wealth management industry is prompting more financial intermediaries to work with money managers and consultants that can provide model and separately managed account portfolios that are customizable to varying degrees — usually depending on client size — that reflect the investor's risk tolerance, income needs and personal values.
Money managers and consultants that manage money have taken notice of the potential of mass customization for their bottom line.
The vast majority — 80% — of the 250 senior executives of U.S. and Canadian money managers surveyed by Accenture PLC in November and December said they believed that "customization for the masses will be an important investment strategy over the next five years," according to the firm's "The Future of Asset Management" report published in May.
"Financial intermediaries are doubling down on developing the technology and data analytics they need for mass customization" and are hiring managers that can create model portfolios and SMAs, said Girard M. Healy, Boston-based managing director in Accenture's North American asset management group, in an interview.
For money managers, "mass customization does require significant scale and the right technology to provide digital and mobile technology" to meet retail investor expectations, Mr. Healy said.
Consultant Wilshire Advisors LLC, Santa Monica, Calif., initially offered its institutional capabilities in asset allocation, portfolio construction and fund selection to the investment adviser industry, but mainly in prepackaged solutions for advisers working with retirement plans and individual investors, said Nathan Palmer, managing director, in an email.
By "leveraging technology to provide the benefits of both customization and automation together — mass customization — (Wilshire has been able) to create flexible, high-quality investment solutions unique to the individual adviser, retirement plan or end investor irrespective of size," Mr. Palmer said.
He added that Wilshire has also harnessed its investment technology to power customized advice for retirement plan participants; target-date portfolios that plan sponsors can customize by setting the glide path, vehicle, asset class, active/passive mix and fund selection; and model portfolios for wealth management firms that select the investment options while Wilshire handles asset allocation and manager structure.
"We remain extremely excited about the prospects for the success of mass-customized discretionary portfolios within the wealth management channel," Mr. Palmer said.
He said Wilshire estimates that the use of model portfolios in the wealth management segment exceeds $1 trillion, about four times the adoption by retirement plans, but still represents less than 10% of wealth management assets.
"We believe that the development of new investment technologies … will enable advisers to automate and streamline the creation of customized models," Mr. Palmer said.
Wilshire had assets under advisement of $1.4 trillion and $87 billion under management as of March 31, of which $20.4 billion was managed for institutional investors worldwide with full or partial discretion in OCIO strategies, according to data the firm provided for Pensions & Investments' annual OCIO report. Wilshire did not provide assets managed for retail and wealth management investors.