As we kick off 2025 with a range of perspectives on investment and asset allocation, here is an article that takes a look at the "personalisation" angle.

The following article about the possible financial scenarios to consider for 2025 comes from Julia Khandoshko, CEO at the European broker Mind Money. 

As mentioned in our forward features calendar, the editors are examining the various ways of thinking about asset allocation and risk management when it applies to investment this year. (Here is an article from December giving the flavour of how wealth managers in general see the next few months.)

The editors of this news service are pleased to share these insights; the usual disclaimers apply to views of outside contributors. To comment, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

In 2025, the US Federal Reserve is planning to continue to ease its monetary policy and has continued to move in that direction, with the latest cut of 25 basis points taking place on 18 December. 

Therefore, future changes will push investors to rethink their strategies. With the expected rate cuts, the era of so-called effortless allocation to bonds with attractive returns is likely to come to an end in 2025. New strategies have to be used to adapt as we enter the new year and what it brings. Let’s discuss what exactly they are in more detail in this article. 

Turn to personalisation 
When investors could massively buy bonds from reliable issuers with high yields, the need for personalisation was minimised. However, the rate cut resumes the interest in many financial instruments, for example, initial public offerings. It is predicted that in 2025, there will be even more offerings and, therefore, more investor attraction. The market rally will broaden and open up more opportunities for both small and medium companies. 

In this updated reality, the role of personalisation will grow many times. Investors with different risk tolerance and different perceptions of market prospects will require a very thorough and, more importantly, highly individual approach.

Traditional methods of compiling an investment profile based on a questionnaire no longer work. Much more work must be done to understand the client’s appetite. For instance, investors can declare a long-term investment horizon, but in fact, they are not ready to withstand a drawdown on accounts even for several weeks. 

Moreover, the old approaches to diversification are losing their effectiveness. Markets have become more globalised, and assets are becoming more interconnected. For example, stocks of large companies and gold are increasingly moving in synchrony. Change is needed, and modern diversification requires more complex solutions. To be precise, the shift can be made towards the emerging market – they move in a different direction and are less dependent on the global political situation.

And 2025 promises to be a volatile year – the unexpected consequences of the Trump election, inflation and overall geopolitical uncertainty can shake the market. Thus, personalisation in such conditions is not only the selection of suitable assets but also a deep understanding of the client's real expectations.

Risks and adaptation to new realities
After many years of being dominated by fixed income, investors have become unaccustomed to risks, which cannot be a good sign against the background of the expectations of a very turbulent season. Many investors say that they have changed their attitude towards investments – 51 per cent say they revised their investments to make them less risky or more conservative because of recent market volatility. 

And this risk averseness creates a dilemma: middle-cap markets offer opportunities for higher returns but also require a greater willingness to accept volatility. In recent years, large-cap companies, particularly those in the US S&P 500 index, have outperformed mid-cap companies. However, this trend may shift in 2025, with mid-cap companies expected to experience faster growth. The matter is that large companies have historically found it easier to secure financing, but the dynamics of funding accessibility may soon evolve. For managers, this means the need to reconsider the approach to working with clients.

Adaptation comes to the fore here, and formal template-based planning approaches are becoming obsolete. Investing without understanding the real "centre of interest" of the client seems to be meaningless. Success in 2025 will depend on the ability to adapt to new economic conditions, consider the individual needs of investors and competently manage risks.

The new reality of tax planning
Taxation issues have always been a major headache for the wealth management industry. However, this type of hurdle for wealth management will become even worse in 2025. The same tools offered in the US, Europe, or Dubai can give completely different results depending on the client's place of registration. Moreover, clients frequently confuse tax residency with tax domicile, which is an important distinction. For instance, in the UK, inheritance tax is determined by the beneficiary's domicile rather than their residency. Such fragmentation of global markets will only continue to take place, and managers will have to consider more thoroughly the nuances of tax legislation when forming portfolios.

This is especially true in the context of stricter ESG standards. Although the principles of sustainable investment are more or less universal, their interpretation and the pace for their implementation can greatly vary. For instance, the EU and the UK are now the leaders in adopting the ESG principles, while the USA still faces acts that hinder this process. Also, different regions may interpret them in different ways, and due to that, understanding them correctly becomes paramount.

Final thoughts
Summing up, when the world becomes more complex, only those who adapt quickly will be able to survive and even maintain leadership in the industry. Speaking of the wealth management of 2025 in particular, the ones who accept the challenge as an opportunity and capitalise on it to deliver creative answers for their clients will thrive.