Given the combination of positive market prospects, the current lack of innovation and the speed of technological development, we believe there is potential for more radical disruption in the investment management industry from new entrants and new propositions.
We are already seeing some signs of new entrants challenging the investment management status quo. While relatively small in both number and scale at this stage, there are emerging models leveraging a combination of technology, data and social networks to bring fresh propositions to market which play to the evolving megatrends.
One of the key challenges many new entrants have is creating a brand and building profile and distribution footprint. This has been a perennial issue.
A trusted brand which resonates and appeals to a more diverse client demographic and a new generation of investors with widely different values and behaviors will be increasingly crucial to build scale. Financial services brands may struggle for some time having been hammered in the aftermath of the crisis.
This potentially provides opportunities for non-traditional new entrants. It may seem a little clichéd but could the likes of Amazon, Google and Apple be the next powerhouses in investment management? After all, they are the top three on Fortune's 'World’s Most Admired Companies list' in 2014.
Instinctively, they have the attributes and capabilities: Brand ubiquity which is increasingly trusted by younger generations; propositions that engage and are relevant; business models which put them at the centre of extensive networks designed to understand needs, anticipate requirements, aggregate information, make clients lives easier, solve problems and change behaviors; enviable distribution footprints; huge client bases spread across all demographic groupings. This is combined with an ability to capture and leverage data to really understand clients and an infrastructure which can deliver personalized and tailored services.
There are, of course, major challenges to becoming a fully fledged investment manager and we are not suggesting that these players will enter the fray in the short term. However, this or the possibility of strategic partnerships with established providers should not be discounted. Indeed, we have already seen some examples of diversification into aspects of financial services and aggregation and there are countless examples where new models have fundamentally changed the competitive landscape in other industries.
Even if the threat is not considered real at this point, it would be a useful exercise to consider how they would approach the challenge. What would the proposition look like? We suspect it would be very different to how the existing industry is currently thinking.
We can also see an opportunity for even more radical investment management propositions to shake up the industry, particularly in response to challenges such as the pension time-bomb.
With investors likely to increasingly value outcomes and certainty over returns and look for opportunities to lock-down value earlier, for some, the focus could shift to products and services rather than cash savings. At the end of the day, cash at retirement is a means to an end rather than an end itself. For most, retirement planning is about securing lifestyle expectations rather than simply cash accumulation.
On that basis, options to secure holidays, cars and healthcare during retirement may be as attractive as putting aside cash. Of course, there are inevitable hurdles to overcome, but in a world where consumerism is hard to break and there is a general lack of trust in financial services organizations’ ability to deliver the promise, we believe such a paradigm shift could be feasible.
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Investors’ expectations will be different, seeking greater certainty and personalized solutions and demanding more holistic overviews of finances.
A new investment management value chain will emerge, necessitating changes to proposition sets, client engagement strategies and operating model.