The Future of Equity Investing is Personalization

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The future of equity investing is changing and will soon be driven by personalization. Discouraged by the lack of personalization in many ETFs and mutual funds, clients will move towards direct indexing and customized separately managed accounts (SMAs).

Indeed, the demand for personalization has already shaped the future of many consumer industries.

Imagine yourself in line at the salad chain Sweetgreen. While the long counter of mix-in ingredients looks enticing, your eyes drift to the menu-board above, tastebuds lighting up as you weigh the merits of the “Guacamole Greens” and the “Kale Caesar.” Or consider yourself slumped on your favorite chair, settling in for Friday-night Netflix. Instead of searching for specific shows from the company’s vast library, you rely on Netflix to mine your viewing history and the preferences of others with similar tastes to suggest five options that all look interesting.

The same process happens when shopping for wine at a specialty store, when you’re given a small group of suggestions based on your favorite regions, styles and price point.

Whether you’re picking out a salad, choosing a movie, selecting a wine, or shopping for almost anything, you’re experiencing a fundamental shift in how we consume goods and services. We’re bombarded by endless options and information, so we take comfort in concisely curated menus.

Sweetgreen, Netflix, Amazon and countless other companies are built on providing variety to customers. But they have realized that while an abundance of choice is good, it weakens our ability to choose and to know what we’re choosing. Their solution? Understand the customer and the market, and find a way to best marry the two by delivering a guided experience.

This phenomenon, in which consumers are provided with specialized recommendations based on preferences and behavior, is known as personalization. While it’s permeated many consumer industries, it’s still fairly nascent within financial services.