Why investors are flocking to digital advice platforms
Faced with a dearth of tools and information needed to create a detailed investment roadmap, and without a compass to ensure they stayed on the right course, the only other option for investors was to pay a financial adviser to set up a portfolio that sought to match their investment risk appetite.
A challenge was to find an adviser not totally driven by commissions from specific managed product issuers, but even finding an independent adviser was still costly and meant vesting full investment control over to a third party.
Fast forward to the present day and rapid advances in technology have totally transformed investor behaviours to the point where more and more individuals are opting to set up and actively manage their own portfolios.
While many may still defer their broader investment strategy decisions to a licensed financial adviser, it’s abundantly clear investors are developing a greater trust for online investment advice systems to take control of their investing.
These systems are often loosely packaged up under the terms robo-advice, fintech or automated investment advice.
Robo-advice meets self-aware investors
There’s no doubt that technology is continuing to transform the investment landscape, but it’s equally evident that investors themselves are becoming more self-aware around their own investment needs.
Data released in the 2017 ASX Australian Investor Study shows that 60 per cent of Australians, or 11.2 million people, now hold investments outside of their institutional superannuation fund. The study also found that 37 of Australian adults, or almost 7 million people, hold investments available through a financial exchange.
Furthermore, the number of Australians wanting to establish their own super fund is set to continue rising from the 600,000 self-managed super funds in existence, with the ASX’s data showing that 30 per cent of the adults that do not currently have their own SMSF plan to set one up in the future.
There’s already more than $600 billion of investment capital held inside SMSFs, and that figure is growing exponentially.
It’s in this space that robo-advice is really coming to the fore, and self-directed investors are gravitating towards fintech platforms that do more than just offering basic financial information and simple investment calculators.
What they’re specifically seeking are more sophisticated services that not only enable them to enter their personal portfolio details, but which can calculate and measure their specific asset allocations, the overall financial health of their holdings, and which can provide them with detailed wealth management and investment content to help them make more informed decisions.
Investors want to receive stock recommendation alerts on their devices, research on the go, and the ability to create company watch lists.
In effect the new era of automated investment advice is a combination of financial algorithms and human financial support – a blend that is enabling investors to tap into the financial tools and investment information they need at will, from their desktop or mobile devices.
Portfolio management in the digital world
Gone are the days when investors relied heavily on an adviser, if they had one, and irregular paper statements to keep track of their investments and performance.
Access to relevant information, too, is now easier than ever – and the best-in-breed online platforms are able to push out specific content to system users based on their investments and information preferences.
After entering their portfolio details and defining their investment goals, investors can use an online dashboard to instantly compare their own investments against recommended asset allocations based around their goals.
As well as being able to see the profit and loss positions on individual holdings, investors can also quickly gauge the financial health of their portfolio by assessing whether it is sufficiently diversified.
A quick online assessment of whether one is overexposed to one asset class and underexposed to another effectively empowers investors to take a more active stance on their portfolio management, enabling them to rebalance positions as required based on their own risk profile.
Other automated tools allow investors to simulate changes to their current investments, and to add new investments, to see how they could affect their overall portfolio’s diversification.
Our terminology for this at InvestSMART is “plugging the gaps” – the process by which investors can identify their portfolio weaknesses (underexposures) and divert other capital into those areas to broaden their diversification.
What’s also interesting is that investors are embracing portfolio management technologies to build up their expertise, because they can use a variety of tools to build a very clear picture of how their investments are tracking.
There is also a thirst for knowledge. Investors are leveraging financial content more than ever, to stay in touch with market developments including what’s happening with their investment holdings, and to educate themselves about financial products and wealth management strategies they can employ to potentially enhance their returns.
What investors really want
From high net-worth individuals down to even the smallest investors, it’s evident that people are becoming more engaged with their finances.
They want more control, more transparency, and they want to access all the information they need to make better investment decisions – preferably all in the one place, within a trusted platform.
Digital technologies are filling the investment void, and investors are reaching out to use them in increasingly greater numbers.
How will the automated investment space change over time? Investors can expect more advances in technologies, including artificial intelligence systems, will quickly transfer across to the investment space.
At the end of the day, the financial journey for self-directed investors is destined to become a lot more exciting over time.