Towards a Technology Based Delivery Model for Investing

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27 October 2014
William Trout
The commoditization of the portfolio construction process has created fertile ground for the emergence of automated advisers providing investment management services at very low cost. But how real are these virtual advisors and what do their technology based delivery models mean for the traditional advisor? These were some of the questions put forth at a recent Celent Executive Roundtable in London. Senior strategy, technology, and innovation leaders from UK and European financial institutions joined several market “disruptors’ for the discussion, which sought to capture emerging trends and highlight innovation within both wealth and asset management. The topic of automated advice served as a starting point for a discussion of the broader transformation of the investment management ecosystem. As traditional advisors with their high cost service models move upmarket to defend their profit margins, automated providers are filling the gap. To date, algorithm driven portfolios have appealed largely to younger and NextGen investors, but as one Roundtable participant noted, these investors will not stay young and cash-poor forever. Indeed, the aspirations and behavioral characteristics of the large NextGen population offer a window into the future of wealth management, as London based analyst Ashley Globerman suggested. Goal focused, idealistic and entrepreneurial, NextGen investors want low fees and control of their financial lives. They value the transparency, personalization and tax management offered by the automated investment advisors. For these advisors, the ability to deliver both customization and scale is not just a strategic advantage; it represents something a holy grail. Certainly, it meets the Celent criteria for disruption in that it breaks existing trade-offs. But as Celent Senior Analyst Jay Wolstenholme noted, innovation must also be judged by the results it delivers. The automated investment managers have not yet been faced with a major financial crisis, nor have they suffered a data breach that might call their model into question. Traditional advisors meanwhile have recognized the threat to their model and have started to respond. To borrow a British expression, it’s still early days.

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