Just as every industry has been disrupted and transformed by the adoption of technology, investment and asset management have come a long way from the days of the open-outcry stock exchange perception many of us still associate with trading.
Self-service brokerage and advice platforms driven by technology have revolutionised individuals’ ability to invest in a variety of asset classes, indices and funds, especially in the last decade.
But what do the next ten years hold for investors and asset managers?
How will we invest?
Pieter Koekemoer, head of personal investments at Coronation Fund Managers, says technology has made it easier to implement an investment decision once you have decided what to invest in and who to use as a provider, but pure-play robo-advisers have so far failed to make significant inroads.
“Most of the successful online advice models globally depend on a hybrid of traditional human-to-human interaction and online tools and calculators,” Koekemoer says.
“That said, when the investment value is relatively low and for a single need, investors tend to go direct, such as investing R33 000 in a tax-free savings account.”
Most of the technological developments are taking place out of sight of the customer, such as the deployment of distributed ledger technology (the blockchain) to increase efficiency for service providers.
“This removes the need for reconciliations and simplifies the trade and settlement process. Increasingly sophisticated approaches to digitally establishing your identity as an investor may mean you soon won’t have to send a copy of your ID and proof of address to service providers,” Koekemoer says.
“This means less cost and hassle.”
Hannes van den Berg, co-head of equity and multi-asset at Investec Asset Management, says 90% of the world’s data has been produced in the last two years alone, according to IBM.
Businesses have recognised the benefits of harnessing big data.
“Data screening tools for quantitative analysis have gained a strong foothold in the investment management industry, because finding a good company to invest in requires processing huge volumes of information from multiple sources quickly,” says Van den Berg.
A quantitative approach using mathematical and statistical modelling can collect millions of discrete pieces of data and process them at lightning speed to identify good investment ideas and assess portfolio risks.
“However, human insight and judgement remains key, with quantitative analysis being used as an initial screening tool to filter a large investment universe, after which fundamental analysts do a deep dive on these stock ideas,” he says.
Earl van Zyl, head of product development at Allan Gray, says the pace of technological change is so fast that we’re likely to underestimate how different the investment technology landscape might look a decade from now.
“That said, investors’ key investment goals are unlikely to change much,” he says.
“They will still want to protect and grow their wealth to provide for themselves and their families and will continue to seek advice for their most critical investment decisions.”
Van Zyl agrees he doesn’t expect to see robo-advisers replacing significantly more human advisers in the next ten years, but he does think advisers will be able to utilise more technology to engage with their clients in more convenient ways.
“This can encompass the investor’s full financial life, not only their investment portfolio,” he says.
“Advisers are increasingly coaching their clients on many facets of their lives that impact their long-term wealth. I think we will see technologies emerge that facilitate that new form of adviser-client relationship, rather than the simplified transactional relationship that is still quite prevalent today.”
By extension, he expects investors to be able to access any facet of their financial life from almost any platform in the next decade, given the advancement of cloud technologies and platforms, including text apps, social media and retail aggregators.
“An investor will then be able to choose, for example, to access their retirement accounts from their banking app, or to link their savings and fitness goals to a single platform where their spending rewards are invested into their favourite unit trust,” Van Zyl says.
On the active versus passive management debate, Van Zyl says both have merit and technology itself will not change anything.
“Many active managers use data science to uncover new insights about markets and companies, and technology is likely to help both approaches adapt and evolve rather than driving markets in any particular direction,” he says.
Despite technology making it easier to engage in self-directed investing, Van Zyl says there are limits to the number of people who are comfortable making important, long-term investment decisions on their own.
“Long-term financial decisions, like how much to save for retirement, and where to invest retirement savings, can be overwhelming for even sophisticated investors,” he says.
“We should be helping people to access a form of advice and guidance that suits their needs in a way that is convenient and delivers value for money relative to the outcomes that they deliver.”