Open Access

Marcus Kaiser, Hans Ulrich Buhl, Stefan Volkert, Veronica Winkler

• This article is about individualising the process of giving advice to a retail customer in the field of asset allocation. With regard to this process, two main contributions are made by answering two questions. First, which objectives are relevant for a customer (beyond return and risk) and which functions are adequate to evaluate portfolios of investment alternatives with regard to these objectives? Based on empirical literature on customers' goals, the four objectives liquidity, variability, comprehensiveness, and manageability are identified as relevant. The background of each objective is discussed in order to formulate desirable properties of the objective functions. These properties are then used to axiomatically identify particular functions from fuzzy theory suitable for the given context. The second question is: which selection function is adequate to select a particular portfolio out of a set of portfolios? To answer this question, again an axiomatic approach is chosen:This article is about individualising the process of giving advice to a retail customer in the field of asset allocation. With regard to this process, two main contributions are made by answering two questions. First, which objectives are relevant for a customer (beyond return and risk) and which functions are adequate to evaluate portfolios of investment alternatives with regard to these objectives? Based on empirical literature on customers' goals, the four objectives liquidity, variability, comprehensiveness, and manageability are identified as relevant. The background of each objective is discussed in order to formulate desirable properties of the objective functions. These properties are then used to axiomatically identify particular functions from fuzzy theory suitable for the given context. The second question is: which selection function is adequate to select a particular portfolio out of a set of portfolios? To answer this question, again an axiomatic approach is chosen: Several properties are discussed and stated which shall reflect the customer's decision calculus. By requiring these properties, the selection function can be exactly specified. The results can help financial services providers in two ways: On the one hand, they can provide their customers with a higher quality of their advisory services by taking into account more objectives than return and risk. On the other hand, as the derived functions are standardised, they can be used in software applications to support the advisory process which can then be offered at lower costs and thereby even to retail customers.…