One of the biggest changes on the horizon in the asset management sector is the integration of new technologies that are being used to make financial systems more efficient. In fact, the fintech landscape is heavily populated and more actors are walking onto the stage every day.
The fintech ecosystem is complex, and everyone seems to have a vested interest playing a role in its development. Infrastructure players that manage payments (eg card companies) are adjusting their systems to include online payments, mobile options and biotechnology, to name a few. Tech companies are entering the fintech arena with solutions for cross-border settlement, blockchain-based exchanges, cryptocurrencies and myriad other services. New start-ups are offering lending platforms, data analytics and security solutions and financial services players are adding robo-advisors to their suite of services.
In the wealth management segment, the advent of robo-advisors is something of a game-changer. Three distinct groups of robo-advisors have emerged: fully delegated, assisted and self-directed. Clients who opt for the fully delegated approach entrust their investments to algorithms that offer investing advice based on user profiles which include investment goals and risk tolerance. Examples of this include Betterment, WealthFront and Nutmeg, platforms which allow users to create and manage investment portfolios online while receiving automatic rebalances in concert with specific market conditions.
Those who want to be more involved in their portfolio management can take an assisted advisor approach, which may consist of "social network investing" or "mirrored investing" where the client is given access to an investor's strategy and may choose to copy investments.
Finally, the self-directed model, otherwise known as DIY (do-it-yourself) investing, merely aggregates funds data and offers the client a platform from which to invest as he or she chooses.
The shift from human-based advice models to algorithm-based models is underway. While there will always be a need for personal portfolio management, millions of people are able to get the services they need from robo-advisors. Twenty years ago, investors walked into their financial advisor's office to discuss investing options-and paid for every minute they were there. Now, people looking to optimise their savings can peruse the internet for investing options that fit their personal goals. If they are so inclined, they can follow trade-for-trade the strategies of likeminded investors. Whether this new investing model will meet the needs of millennial investors and the extent to which it will disintermediate traditional financial services remains to be seen. But one thing is certain: financial services are going to change.