Our industry faces great challenges - from creating solutions for new generations of investors to navigating rapid technological and regulatory change. However, by collaborating with industry partners and harnessing investment innovation, platforms can not only embrace these challenges but begin to introduce investment platforms to a broader client universe.
This demand means not only an evolution in infrastructure, but a quantum leap forward in understanding how new themes and mega-trends will reshape the industry and investment landscape.
Address the millennial wave
The investment industry is arguably light years behind other industries in terms of user experience. According to a Facebook data survey, 92% of millennials do not trust high street banks following the financial crisis. Meanwhile, this demographic is now attuned to seamless, user-friendly services, such as those provided by Amazon and Google.
However, a sizeable portion of the investment industry is run on mature technology requiring manual entry in key areas, which can ultimately create inefficiencies for clients. Collaboration with cutting-edge technology providers will allow wealth platforms to drive greater efficiencies and deliver cheaper solutions to clients, while creating straight-through processes that will drive transparent and seamless user interfaces.
The industry has also failed to engage with this audience and align to its ethics and interests. However, thematic investing is rapidly opening up to mainstream investors. For example, last year, BlackRock launched the iShares Thomson Reuters Inclusion and Diversity UCITS ETF, which tracks stocks with the highest diversity and inclusion metrics. And this year, the ETF innovator launched the iShares Electric Vehicles and Driving Technology UCITS ETF, tapping trends in electric car automation. Platforms must realise thematic instruments can capture the imagination of the future generation of investors by creating exposure to a spectrum of trends, from ESG factors to technology.
Support the ESG revolution
ESG to date has largely been the preserve of institutional investors, but we are now seeing it adopted by the mainstream retail market - driven by a new breed of investors who want their investments to have a positive impact on the world around them. Investors like Hoshang Daroga of Copia Capital Management believe the proliferation of ESG strategies will be a self-fulfilling mega-theme, as capital around the globe flows away from companies with poor ESG practices to those effecting positive change.
Copia has seen a sharp increase in adviser demand for ESG strategies, while BlackRock expects assets under management in ESG ETFs to swell dramatically in the next ten years, driven by accelerating retail demand. It is important both platforms and advisers develop a greater understanding of ESG themes via both mutual funds and ETFs as demand gathers pace.
Outsource to industry expertise
While platform pioneers, such as Novia, have led the way in providing advisers and underlying investors access to ETFs, not all platforms are supported by the requisite technology. Unfortunately, those which have not integrated innovative infrastructure into their technology stack from the outset have been challenged to keep pace with new fintech players. Platforms without the right technology and integration have also been hindered by higher trading and associated costs due to cumbersome legacy systems.
This creates a regulatory gap for advisers - as failing to provide ETFs creates an uneven playing field with a natural bias to often higher cost vehicles such as unit trusts. To ensure advisers get access to a broad range of investment instruments, platforms can look to partner with industry peers in order to deliver technological solutions. Fortunately, we have also seen trends in outsourcing to discretionary fund managers (DFMs) by financial advisers. This allows financial advisers to focus on their core skills, while the outsource managers provide underlying clients with the full menu of product innovation.
Remove fractional share barrier
According to Gemma Godfrey of digital investment platform Moola, there are 13 million households in the UK without access to investment advice. She believes one of the barriers has been a failure by our industry to engage on education and an unwillingness to remove jargon from investment communication. She is also a proponent of wider adoption of fractional shares - which she believes are about to make big waves in the investment world.
A fractional share is simply a share of equity that is less than one full share. Previously, micro investors could not buy a stock like BP or an ETF fund if the unit price was more than the cost of the regular contribution, leaving a diminished investment universe and inefficient portfolio rebalancing.
We are assisting platforms in adding fractional share dealing services, allowing micro investors to buy these securities with as little as one penny, rather than a whole share, across a range of asset classes. Ultimately, we believe fractional share dealing services will help more platforms build wider investable universes for micro investors and encourage saving. They will also help address the growing intergenerational wealth inequality by unlocking the power of investing a little, often and early.
Thomas Lowe, head of product at Winterflood Business Services
