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Rethinking the Wholesale Distribution Workflow (Part 3)

Wealth Management

By Thomas Etheber, PhD, CFA  |  September 22, 2021

As advisors continue to move from purely product- to solution-oriented sales and advisory processes, the questions raised to their wholesaler partners have naturally gained in complexity. They request investment know-how beyond simple product pitches. However, wholesalers’ sales forces are often not well prepared to deliver on these requests. For sure, all of them are experts in their individual product domains, but only a few have the competencies to deliver on the more complex needs, such as sophisticated portfolio construction or financial planning services.

Because these higher value services are not only more demanding from a communicative point of view but also from a data, analytical, and computational perspective, technology clearly plays a significant role. There simply is no human who can perform sophisticated mathematical optimizations without any technological support. That is one reason why many wholesalers began to set up specialist teams. These teams are often not only responsible for building and maintaining their internal tooling (e.g., for portfolio construction) but also are employing their tools to deliver on advisors’ requests.

Many wholesalers are transitioning these services to a new and more advanced level by supporting their specialist teams with advanced analytical platforms. In this series of articles, we concentrate on the technology part of this story and review some of its key characteristics. Previously, we discussed the importance of developing a modern wholesale distribution platform that is informative and monitoring. Here we focus on having a platform that is personalized and emotionally engaging as well as extendable.


Personalized and Emotionally Engaging

The growing interest in ESG-related investment topics illustrates that many investors want to see more from their deployed money than investment performance. Nevertheless, people’s fundamental interests and beliefs have widely been neglected by advisors. Portfolios are often structured identically for different clients (this is exactly what most robo-advisors are doing). Depending on a client’s risk profile, their money is deployed to one out of X pre-defined model portfolios. In contrast to this one-size-fits-all allocation, we expect that in the future most investors’ portfolios will be personalized. While personalization and scale sound like contradictory concepts, the solution can be found in “mass-customization.” What does mass-customization mean in practice?

First, your analytical platform needs to provide solid answers to investors’ most basic questions, such as:

  • Which security would best complement a client’s existing portfolio from a return, risk, and diversification perspective?
  • Which current investments of a client portfolio should be exchanged for others and why?
  • What is the most cost- and tax-efficient way to withdraw x% of the portfolio?
  • Can the client profit from “tax-loss harvesting”?
  • How can a portfolio be hedged against market downturns without realizing accrued investment gains?

Second, software support for investor personae along the traditional lifecycle model might help ask the right questions at the right time. How would the standard of living of a 59-year-old client need to change if a severe depression hits the markets? What does the overall exposure of a 29-year-old young professional couple look like after marriage? Why might it pay for a wealthy 45-year-old investor to convert a portion of inherited real estate into more liquid traditional assets? By leveraging advisors’ experience, it should not be difficult to create standardized personae and design workflows, which seamlessly answer these questions in a robust, evidence-based way. These questions can become important door openers for deeper client relationships.

Let us go one step further. The role of fully independent advisors acting in clients’ best interests is comparable to that of a doctor. When talking with a patient receiving the diagnosis of an illness, the doctor does their best to provide information about different treatment options, identify the risks, discuss potential treatment plans, and of course, point to the different chances of recovery. The main point here is that after the doctor has provided their expert guidance and the information they deem appropriate and comprehensible, the patient is tasked to make their own decision. With good financial advisors, the situation is analogous. The advisor should certainly point to all known pitfalls of potential investment options and weigh the pros and cons. However, since so far nobody has invented a crystal ball, the final decision must be made by the client. From that perspective, the best outcome an advisor can achieve is that a client has fully understood all inherent risks and opportunities, but nevertheless is personally convinced from the proposed investment recommendation. The client should firmly believe in the future of their investments and that their money is employed in line with their belief system. That is what we call emotional engagement.

How can such an outcome potentially be realized? A core-satellite investment approach might come close to this idea. A core-satellite investment approach is not a particularly new idea, but when combined with modern investment technology it leaves a lot of room for discretionary decisions. Here the full portfolio is split between core and satellite investments, with the core portfolio representing most of the investments (typically between 65%-95%). It is aligned with overall risk preferences and may be invested in rather traditional and liquid assets. This core sleeve is designed to be broadly diversified, rebalanced regularly, and rather cost effective in terms of management fees. The more interesting and emotionally engaging element stems from the satellite investments, which can be constructed of thematic investments. With the help of these satellites, the advisor is free to explore what the client cares about and the strength of those beliefs. If the beliefs in certain future trends are strong, the client may opt to reduce the core portfolio and increase the exposure to respective satellites.

The trend towards more sustainable investments is certainly going to continue and to influence the finance world of the future.

Regarding the latter, most investment companies already have specialized thematic investment products. The trend towards more sustainable investments is certainly going to continue and to influence the finance world of the future. ESG-related investments are not only increasingly demanded by all kinds of investors, but many regulatory bodies are actively supporting the move to a more sustainable way of doing business (e.g., EU taxonomy for sustainable activities). Combined with novel datasets and specialized research this leaves a lot of room for innovation and to build customized satellite portfolios, which are fully aligned with investors’ belief systems.

Thematic investments don’t just cover ESG-related topics, but range across all economic segments from clean energy production, building smart cities or other modern infrastructures, medical advances or reengineering the healthcare industry, etc. Specialized research providers easily count a few hundred possible trends and resulting investment themes from all areas of modern life. A selection of these specialized themes can be offered to clients and integrated into their respective satellite sleeves. Modern investment technologies can help to combine these specialized satellite investments with investors’ core portfolios in the most favorable and risk-return optimized way. Not only does this investment approach benefit investors, but it also allows for ongoing advisor engagements as new information for a specific investment theme arrives or completely new investment themes are being set up. With this approach, the advisor-client communication no longer must revolve around portfolio analytics, but rather it can evolve around the underlying interests of clients.


The last key characteristic is not specific to financial technologies and applies to all software selections. It centers on the extendibility of the overall software solution, including the analytical platform as well as its surrounding workflows. Extendibility is, of course, very important for assessing the future-proofness of any technology investment. It’s also of special importance for establishing a modern wholesaler platform. When looking at the already high degree of competition in the industry and the significant venture capital investments made in the fintech industry, it is highly unlikely that any software vendor can be the best in class for every specific functionality at any given point in time. Consequently, modern technology platforms need to be as open and extendable as possible. This not only means openness in terms of data but also in terms of algorithmic ingestion.

Modern technology platforms need to be as open and extendable as possible. This not only means openness in terms of data but also in terms of algorithmic ingestion.

Mature platforms can interface with all external technologies (i.e., legacy or modern, SOAP, API, XML, JSON, CSV, flat files). Usually, these integrations require some custom development. However, integrating third-party data into a well-designed platform should take days rather than weeks. This requirement becomes even more important as many wholesalers have developed proprietary technologies covering custom ways of doing business (e.g., bespoke computations or integrating proprietary datasets). For the overall design of an analytical platform, the ingestion of these “secret sauces” allows the customization of underlying workflows to wholesalers’ individual needs and the ability to bring their desired differentiation to the market.

Furthermore, a focus on extendibility will allow the implementing organization to cherry-pick new functionality and data from third-party vendors, which may not even have existed when the platform was originally built. That also means that instead of reducing the setup of a wholesaler platform to a one-off sourcing or building decision, the underlying mindset must change to a more agile and iterative approach. Successful wholesalers have understood that building an investment platform does not stop once its initial version has been deployed to production systems; rather than the end, this significant event should be considered as the beginning of the technological journey. From now on, the fine-tuning of the platform can start to capture lasting competitive advantages.


Confronted with many adverse macro forces shaping the asset management industry, many wholesalers sense that their businesses are at risk. Being nimble, agile, and open-minded to the necessary changes and the shifting distribution models in the industry should be on every management’s agenda. The necessary change may appear hard and eventually, important decisions must be made. The stakes are high, but so is the opportunity. Leveraging technology surely plays an even more important role in the future than it did in the past. Therefore, modernizing one’s existing business infrastructure and analytical platform can constitute a significant source of lasting competitive advantage.

Other articles in this series:

Rethinking Financial Advice from a Wholesaler’s and Technology Perspective

Rethinking the Wholesale Distribution Workflow (Part 1)

Rethinking the Wholesale Distribution Workflow (Part 2)

This blog post has been written by a third-party contributor and does not necessarily reflect the opinion of FactSet. The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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Thomas Etheber, PhD, CFA

Head of Investor and Marketplace Solutions, Upvest

Dr. Thomas Etheber is Head of Investor and Marketplace Solutions at Upvest. In this role, he and his teams are reengineering and innovating the machine room of today’s securities markets’ infrastructure. Prior, he was a lead consultant on market development at FactSet and has held a variety of client-facing roles in professional services and market development in the financial services industry where he primarily specialized in digitizing financial advisory processes. Dr. Etheber earned a doctorate in finance from Goethe University Frankfurt and is a CFA charterholder.


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.