The power of personalization for financial advisors

What do a homemade birthday card, a vanity license plate and a financial plan have in common? 

Whether celebrating someone special, adding a pithy combination of letters and numbers to a vehicle, or offering bespoke advice, they all showcase the power and promise of personalization.

We believe it’s powerful for financial advisors to focus on offering customized services to clients. It can foster loyalty, set them apart from the competition and provide an emotional connection in a sea of generic interactions.

A growing body of scientific and business-oriented evidence suggests the same. We reviewed a collection of reports from business consultants, studies on video game avatars, and even innovations in online grocery shopping to showcase just how powerful personalization can be. These are some of the surprising facts and figures behind customization’s appeal.

The business of personalization

We want uniqueness in our lives. We showcase it in the clothes we wear, the friends we make, and the way we invest our time and resources.

A recent Twilio survey on personalized shopping experiences found that more than half (56%) of customers say their feelings of loyalty increased after participating in a tailored purchasing journey.¹ In a similar vein, McKinsey & Company found that customized marketing reduces customer acquisition costs by as much as 50%, lifts revenues by as much as 15%, and increases marketing ROI by as much as 30%, compared to non-individualized efforts.²

What does that mean for advisors? With RIAs spending an average of $27,800 on marketing in 2022, personalization efforts in marketing alone could result in five-figure savings and significant growth for an advisor’s book of business.³

Using AI to personalize at scale

Online grocery shopping offers an interesting illustration of how new technologies can be used to increase positive feelings about a service or sale, all while learning more about a customer and boosting sales.

The online grocery store Misfits Market has been using artificial intelligence and machine learning to boost basket size while refining its customer insights.⁴

When shoppers log onto the service, they find their carts pre-filled with products they tend to buy on a weekly basis, with the ability for every shopper to approve or reject items. Behind the scenes, the company uses its client data to help shoppers avoid the tediousness of building carts from scratch, getting them through the check-out process more quickly.

According to the company, most shoppers’ carts are filled with 75-80% of the same things every week. That’s where Misfits Market’s algorithmic “discovery” component comes in: it uses the 20-25% variability in every cart to suggest items that were previously purchased by the shopper, make product pairings, and even expand the range of what a shopper puts in his or her cart.

Grocery shoppers have responded positively to the pre-filled carts and discovery features, according to the company.

How does this impact advisors? The sheer number of investment models, vehicles for investing, tax considerations, and asset allocations quickly add up to a product menu that could dwarf anything available in a grocery store. According to recent estimates from Morningstar, investors will soon be facing a potential personalization overload scenario, where advisors and investment teams may need to pick the right investments from an inventory of more than one million managed products.⁵ 

 By harnessing artificial intelligence and machine learning, advisors can set investors up with a tailored investment solution, at scale, giving clients another reason to recommend their advisor to friends and family.

Channeling psychology to build a compelling business model

Social science helps explain why we get so much satisfaction from customized solutions: humans are wired to enjoy the feelings of autonomy and control.

Customized marketing reduces customer acquisition costs by as much as 50%, lifts revenues by as much as 15%, and increases marketing ROI by as much as 30%, compared to non-individualized efforts.

In a study examining video gamers and in-game customization, researchers found that autonomy, control, and attachment created enjoyment, even in a fictional world. Gamers who were attached to their customized avatars, for example, had higher perceptions of immersion and enjoyment in the game they played than those without customization options.'

Gamers offer just one example of a phenomenon advisors know by heart. When their vendors customize and white-label solutions, the vendor-advisor relationship is often stronger and more resilient.

The same rings true for advisors and their clients. When clients receive individualized solutions, it extends the positive feelings of autonomy and control from advisor to client, even amid market movements and economic shifts.

Expanding one’s knowledge through personalized coaching and specialized education is another method for extending control and autonomy. It’s one of the reasons why mentorship, entrepreneurial peer circles and other forms of coaching are so successful in the world of business.

1. The State of Personalization 2023,” Twilio, 2023
2. “What is personalization?” McKinsey & Company, May 30, 2023
3. “The Financial Advisor Marketing Playbook,” Broadridge, 2023
4. “Misfits Market introduces autocart tool, loyalty program,” Catherine Douglas Moran, Grocery Dive, July 1, 2022
5. “Morningstar CEO: ‘Active Personalization Is the New Active Investing,’” Diana Britton, WealthManagement.com, May à, 2022
6. “Is it a sense of autonomy, control, or attachment? Exploring the effects of in-game customization on game enjoyment,” Keunyeong Kim et al, Computers in Human Behavior