Changing client demographics and preferences, along with market uncertainty and new investment opportunities, are creating plenty of opportunities for advisors to create competitive differentiation, according to a panel of investing professionals.

The key, said a panel of chief investment officers and advisors brought together by Goldman Sachs yesterday, is client personalization—especially by using asset allocation to address needs and manage tax burdens.

“The most important part in all of this is making sure that clients know what they own and why they own it,” said Cameron Dawson, chief investment officer at NewEdge Wealth, a Stamford, Conn., RIA with $8.6 billion in assets under management. “The challenge happens when a client gets sold something, versus a client being presented with a solution for what they need.”

NewEdge calls it “functional asset allocation,” she said.

“It just means that instead of thinking about strategic and tactical asset allocation, we think about the function that the investment plays within the portfolio, whether it’s to provide you with short-term liquidity or diversification or long-term growth,” Dawson continued.

Hosted virtually by Greg Calnon, co-head of public investing at Goldman Sachs Asset Management, the panel included his colleagues Alexandra Wilson-Elizondo, co-CIO for multi-asset solutions, and Sylvia Yeh, head of fixed-income wealth solutions.

A recent Goldman Sachs survey of 1,000 U.S. high-net-worth and mass affluent investors found that 95% wanted their advisors to protect them from down markets, another 95% wanted tax-efficient investing, 93% wanted income solutions in the “higher for longer” interest rate environment, and 90% highlighted individualized portfolios.

The first theme the asset manager pulled from that survey was that clients wanted their advisors to provide more comprehensive solutions across their wealth needs, Calnon said. The second was they wanted personalization.

“Investors want to be offered solutions that meet them where they live in specific and personal ways,” he said. “And as their wealth grows, they have a greater appreciation for the need to meaningfully diversify.”

After the aberration of 2022, when fixed income did not provide diversified ballast again stock market fluctuations, Yeh said bonds are once again “acting like bonds.”

“They’re supposed to provide stability. They’re supposed to be providing income. They’re supposed to be reducing portfolio risk,” she said. “Clients want the predictability in these portfolios, and laddered portfolios in particular are super popular. They’re not sexy, but they’re so practical with clients.”

In addition, she said, cash on the sidelines or parked in a money market fund are being traded in for longer duration vehicles.

“I won’t get into predicting what the Fed is going to do, but I do like to remind clients that the current rate environment is a friendly one, and we’re being compensated to own bonds, and longer duration bonds in particular,” she said.

The sweet spot for duration, according to Yeh, is intermediate unless a client needs customization that will tilt longer or shorter.

“Intermediate duration tends to be at our core,” she said.

Another investment sector ripe for personalization is alternative assets, the panel said, as benefits can include improved risk-adjusted returns and greater diversification.

“In the illiquid space, we’re seeing emerging macro themes such as energy transition and AI as places where we can invest,” Wilson-Elizondo said. “There’s also that opportunity to create alpha." For those holding private equity, she said, it's found in operational leverage. But for those holding private credit, it's through control over terms.

Private credit investors also benefit from higher yields thanks to the illiquidity premium.

When Dawson works private investments into a client portfolio, she said she’s very selective, especially since the private markets have broadened over the years and there is a lot to choose from.

“What we’ve seen in the past is kind of a Golden Corral approach to alternatives investing, which is you belly up to the buffet and you take one of everything just because it’s there,” she said. “That’s not really the right solution for clients.”

But little supports a client’s well-being much as tax-efficient portfolios, the panelists agreed.

“Income generation is very often the goal of many bond portfolios, but let me clarify that goal,” Yeh said. “The goal is to generate high levels of tax efficient income without taking on too much principal risk. Anyone can run around and say they generate income, but what are the consequences of that?”

It’s what clients keep that counts, she continued, adding that Goldman Sachs builds out a tax-aware strategy through fixed-income separately managed accounts tailored to a client’s state of residence and tax rate.

“It holistically provides our clients with broad access to investment grade fixed-income and allows us to maximize after-tax income. It’s really resonated with our clients and advisors, and has surpassed $10 billion in just three years,” she said.