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Digital investing will bring big changes in 2018

Get ready for a price war, and asset managers targeting consumers directly

Dec 14, 2017 @ 3:29 pm

By William Capuzzi

If we learned nothing else about the financial advisory business in 2017, we know that the digital revolution is just getting started.

Brokers and advisers are facing increasing pressure to be more transparent and reduce fees. Complex regulations are intensifying manual workloads and further squeezing profits. Against this backdrop, a younger generation of consumers who conduct all aspects of their lives from the phone in their pocket are demanding a similar digital experience in investing.

(More: Survey: 41% of households mix digital, human financial advice.)

With technology now a fundamental part of financial services, savvy firms are rethinking the very foundation of how they do business. Across the industry, we are seeing huge leaps in efficiency, speed and transparency as a result of an influx of digital wealth solutions. With more investors choosing to focus their money in an ever-expanding ecosystem of digital wealth platforms, here are four predictions for the industry in 2018.

PRICE WAR

A wealth management price war will take hold.

The 40 basis-points-world for traditional advisers is coming our way. The rise of digital advice platforms continues to produce growing fee pressure for incumbents and create advantages for players with scale.

Following market share gains by Vanguard, Schwab, Betterment and other price leaders, the strongest RIAs and wealth managers will trigger a race to the bottom with new pricing paradigms. Many of these models will incorporate a base service that is free with the option to add on additional services for a fee.

We are already seeing that as the price war forces advisers to become more efficient, it is making the market accessible to new groups of people who previously couldn't afford the minimums to open an investment account or the fees that would follow. In other words, it is benefiting all consumers by democratizing investing.

HOLISTIC EXPERIENCE

Digital wealth will begin the evolution to a holistic financial experience. As digital wealth goes mainstream, incumbents need to differentiate their solutions with new features and standards of performance.

We can expect to see them connect the dots of digital wealth possibly by offering daily financial services like retail banking, credit and insurance. These services are likely to be tiered and upsold with hybrid models to give consumers a seamless way to manage digital wealth.

ASSET MANAGERS

Several of the largest asset managers will start a direct-to-consumer channel. Many asset managers left the direct-to-consumer channel years ago, leaving a few firms like Vanguard and Fidelity to dominate the market.

(More: BlackRock, Vanguard on track to manage $20 trillion within a decade.)

But as the price war intensifies, many managers will increasingly look to cut out intermediaries like the traditional custodians and brokers who are squeezing their profits. Once again, direct-to-consumer channels will become the primary way for advisers to manage their margins and control their own destinies.

BIG TECH PARTNERSHIPS

The titans of tech will forge blockbuster partnerships with digital wealth managers.

Google, Amazon and Apple are among the most revered companies in the world because of their track records in disrupting legacy industries through intuitive, personalized and responsive digital experiences. They can set a new bar for what digital advice can and should look like.

Should they choose to launch digital advice products themselves, they would immediately benefit from the brand equity they have built among consumers, even though they have no history in the industry. In fact, PayPal's new partnership with Acorns suggests this trend is already underway.

I anticipate others are close behind as they compete to win first-mover advantage. One can only imagine the pressure this will put on industry incumbents to speed up the pace of innovation and bring modern consumer user experience to wealth management.

William Capuzzi is CEO of Apex Clearing.

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