With the Christmas lights on, it’s a suitable time to turn to the year ahead and what it might bring for the investment management industry.
However, in reality there are a number of ‘mega-trends’ that I believe will dominate how the industry develops over the next 5-10 years outside of the ongoing dialogue around Brexit, SMCR and GDPR:
- Changes in the way we work, manage our pensions and generational dynamics will have a huge impact on how firms need to engage with clients. As responsibility for managing pensions moves from government and corporates to the individual and increasing numbers of people work in the gig economy, new clients who have different needs from traditional target markets are emerging. Whilst we’re about to see the largest wealth transfer in history from the baby-boomers to more tech savvy Generation X and Millennials, this will realistically impact only a very small minority. Highlighting the need to better support a wider demographic, a paper was published by the Resolution Foundation this week discussing the challenges faced by first time buyers in saving for a deposit, the impact of parental wealth and related decline in social mobility over the last 3 decades. To best support both ends of the spectrum and stay relevant to their clients, firms need to find new ways to provide simple, straightforward access to savings and investment services to ensure that they are able to take advantage of these services whenever they are able.
- For years, the spectre of robo-advice has hung over the industry, but in reality the $AUM market share of standalone FinTech advisors remains very small. Whilst it is clear that robo has a role to play, the nature of investment services means that human interaction remains a key part of the service proposition – as evidenced by Nutmeg’s introduction of a telephony based investment advice service. With margins tight and the cost of client acquisition high, it seems unlikely that there is space in the market for a large volume of standalone FinTech players. More likely is that a relatively small number of robots will operate from within large multi-channel financial services providers or large new entrants with deep pockets and access to a large client base like the GAFA (Google, Amazon, Facebook & Apple) firms. Either way the trend of consolidation is likely to continue as firms look to build the scale required to compete in a tight market.
- This environment, combined with a regulator who is active in encouraging innovation, gives rise to the potential of new business models emerging to enable firms to compete for market share. Increasingly firms are partnering to develop a breadth and depth of capability, service and product offerings that they would not previously have capacity to provide in house whilst providing flexibility to quickly adjust business models if required. Understanding how best to identify, engage with and build successful relationships with partner firms will therefore become increasingly critical.
Whilst we have no definite answers on exactly how this will play out, it is my personal opinion that those firms who focus time and energy into optimising how they engage with clients, either directly or through partners and in developing flexible business models are those most likely to not only survive, but also thrive.