Financial Account Consolidation: Untapped Potential

Many individuals diversify their investments across various banks, brokerage firms, and retirement accounts. According to Mercator Advisory Group (Now Javelin strategy and research), on average, consumers own 5.3 accounts across all types of financial institutions. Morgan Stanley estimates that clients hold approximately $2 trillion in assets outside their primary financial institutions.

Understanding Asset Fragmentation

While diversification is a sound investment strategy, clients spreading assets across multiple institutions means financial advisors, RIAs, and wealth managers are not maximizing the revenue they can bring into their firm. For the clients, it can also lead to challenges such as:

• Complex Financial Management: Managing multiple accounts requires tracking different statements, tax documents, and performance reports, increasing the administrative burden.
• Inconsistent Investment Strategies: Different institutions may offer varying advice, leading to a lack of cohesive investment strategy and potential overlaps or gaps in asset allocation.
• Increased Costs: Maintaining accounts at multiple institutions can result in higher fees, including account maintenance charges and transaction costs.

The Case for Consolidation

Consolidating assets with a single financial advisor or institution offers several benefits:

1. 1. Simplified Management: A unified portfolio provides a clear overview of assets, simplifying decision-making and financial planning.
   2. Coordinated Strategy: A consolidated approach ensures that all investments align with the client's overall financial goals and risk tolerance.
2. 3. Cost efficiency: Reducing the number of accounts can lower fees and allow clients to take advantage of benefits associated with larger account balances.
3. 4. Enhanced Tax Planning: A comprehensive view of assets facilitates more effective tax strategies, such as tax-loss harvesting and strategic asset location.

1. According to Vanguard, consolidating investment accounts can simplify recordkeeping, aid in developing appropriate goals, and help reduce fees.
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Psympl's Psychographic AI^TM: A Strategic Tool for Asset Consolidation

Psympl's Psychographic AI^TM leverages advanced data analytics to understand clients' financial behaviors, preferences, and motivations. This is based on Psympl's proprietary psychographic model, which identifies consumers' financial psychographic profiles backed by extensive market research insights and data. By identifying clients who are more likely to consolidate their assets, financial institutions can implement targeted strategies to encourage this behavior.

Practical Application: A Case Study

Scenario: A wealth management firm seeks to increase its assets under management (AUM) by encouraging clients to consolidate external holdings.

Implementation:

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2. 2. Client Segmentation: Psychographic AI^TM identifies a segment of clients who value simplicity and have previously responded positively to integrated services. The Psympl financial psychographic model consists of five distinct psychographic segments, each with differing financial attitudes, motivations, and approaches to finances, investing, and views regarding financial advisors. Comprehensive national market research conducted by Psympl with Ipsos explored this topic, and it is clear there are two financial psychographic segments who are most likely to respond to an account consolidation message:

3. 3. Targeted Outreach: The firm develops personalized communication highlighting the benefits of consolidation, such as streamlined reporting and potential fee reductions. Each psychographic segment requires a unique engagement strategy involving messaging (words to use, words to lose), preferred channels and frequency of engagement to maximize response and conversion. Without tailoring the approach to each segment’s unique preferences, a generic, “one size fits all” strategy will likely fail to engage clients effectively.
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5. 4. Incentive Programs: To motivate action, the firm could offer incentives like reduced fees for a specified period or complimentary financial planning services.
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7. 5. Monitoring and Support: The firm provides dedicated support to assist clients through the consolidation process, ensuring a seamless transition.
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Outcome: It would not be unreasonable to expect a 10% - 15% increase in AUM from the targeted client segment(s), with clients expressing higher satisfaction due to simplified account management. In their prior ventures using psychographics, the founders of Psympl have seen 20% - 3X increases in desired consumer behaviors.

Efforts Supporting Asset Consolidation

• Morgan Stanley's Initiative: Morgan Stanley estimates that its clients hold approximately $2 trillion in assets outside the firm. To capture a portion of these assets, the company has integrated advanced technologies, such as BlackRock's Aladdin platform, to provide comprehensive risk management and portfolio analysis tools.
• Benefits Highlighted by Financial Advisors: Financial institutions like Baird emphasize that consolidating assets with a single advisor not only simplifies financial life but also offers greater coordination and efficiency, ultimately aiding in achieving financial goals.
• Client Behavior Trends: A study by RBC Wealth Management indicates that consolidating retirement accounts can provide a clearer picture of one's financial situation and simplify retirement income planning, reflecting a broader trend towards asset consolidation for strategic benefits.

Challenges and Considerations

While asset consolidation offers numerous benefits, financial institutions must address potential challenges:

• Client Reluctance: Some clients may be hesitant to consolidate due to loyalty to existing advisors or concerns about putting "all eggs in one basket." 
• Transition Complexity: The process of transferring assets can be complex, involving paperwork, potential tax implications, and coordination between institutions.
• Regulatory Compliance: Ensuring that consolidation strategies comply with regulatory requirements is crucial to avoid legal pitfalls.

Strategies to Overcome Challenges

To effectively encourage asset consolidation, financial institutions can adopt the following strategies:

1. 3. Streamlined Processes: Develop efficient procedures to handle the administrative aspects of consolidation, minimizing client effort.
2. 4. Personalized Solutions: Use tools like Psympl's Psychographic AI™ to tailor strategies and engagement messaging that resonate with individual client preferences and motivations.
3. 5. Trust Building: Demonstrate the institution's commitment to the client's best interests through transparent communication and fiduciary responsibility.
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Conclusion

Asset consolidation presents a significant opportunity for both clients and financial institutions. Clients benefit from simplified management, coordinated strategies, and potential cost savings, while institutions can increase assets under management and strengthen client relationships. By leveraging advanced tools like Psympl's Psychographic AI™, financial institutions, RIAs, wealth managers, and financial advisors can effectively identify and engage clients inclined toward consolidation., implementing targeted strategies that align with individual preferences and behaviors.

To learn more about Psympl's Psychographic AI™, please visit our website or feel free to contact us directly.