Summary: Looking at the big trends likely to impact the digital wealth solutions market this year, one of the standouts is the challenge to discretionary asset management from incumbent financial institutions mobilising tech platforms to provide guidance-based investments.
Guidance-based thematic investment is the natural next step in the evolution of asset management, taking research into tradeable assets and translating it into actionable content. Banks, asset management companies and large financial institutions are already poised to take a lead on this, sitting on vast swathes of research and data on assets and companies. What guidance-based thematic investment will do is allow investors to not just assess the prospects of tradeable assets, but also to act on what they see best aligns with their personal views, interests and aspirations thus keeping the investor more engaged with their future wealth and investment choices.
Take for example if an investor has a growing interest in the field of clean energy, electrification of the auto industry, or the effects of AI on human job employment. What guidance-based thematic investing will do is to link that interest and research on this topic to make it easily accessible for the client to make an investment in MIT Robotics, or something similarly relevant.
The challenge is which companies will be the first-movers in the consumer space? At the heart of this is the democratisation of information and making simple and readily-available advisor tools for clients. Extending beyond that is a growing awareness that we, as individuals, each can make an imprint on the world with our decision-making, whether that be making changes to our lifestyle to protect the environment or investing in companies with agendas that align with our views.
Whenever an investment is made into an individual company, the investor is essentially supporting that company’s agenda. A share in a company that, for example, works with renewable energy, is more than just an opportunity to achieve a return on investment, it is an ownership share of the entire company and can even help combat climate change.
The same dynamics apply if an investor buy into a fund that invests in several different companies according to special principles. It may be organisations that focus on companies with more women in management, education or clean drinking water. By consciously choosing to invest in companies that align with the investor’s values they are voting with their money.
The excitement about guidance-based thematic investment is heavily rooted in this new reality and, with more transparency in trading and investments than ever before, investors are now able to have their values, preferences and goals reflected in their investments.
However, traditional advisors are not going to be incentivised to invest in such an innovation as they already make comfortable commission on the assets invested by their clients. Meanwhile, robo-advisors are already charging very low fees for managing clients’ money and grappling with the challenges of scaling their businesses while remaining profitable.
Our prediction is that a new cohort of incumbents from the financial sector are going to mobilise technology to produce this kind of guidance and it will transform the asset management industry permanently. Banks and large financial institutions are in the best position to drive this change because they already possess the best content and research teams, as well as quality investments systems that they use either proprietarily or are selling as a product.
We expect that these incumbents will try to find new ways to monetise this content and data. We know that large financial institutions are sitting on gold when it comes to the volume of quality content, they have at hand which makes this new development very exciting. But where they are weak is on technology and user interface.
Clearly, the building of a guidance-based platform will necessitate a user interface which takes research and analytics and turns it into a narrative for clients so that they can go from taking an interest in a topic or a sector and easily making an investment. This is where collaboration with specialist technology start-ups will be key and where the opportunities lie.
At Saxo Bank, we are here to democratise trading and investment and empower everyone who wants to navigate their own financial destiny. We see guidance-based thematic investment as an important next step in the democratisation of investment. Since the launch of our first digital investment platform in 1998, utilising technology to lower costs and provide traders with transparent access and tools to navigate financial markets has been at the heart of all that we do.
People will soon discover that the traditional advisory model and even robo-advisory is not the business to be in anymore, and rather this emerging new world of guidance-based thematic investing is the future.