Outside-IN

Outside-INblog

Outside voices and views for advisers

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.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Does your pay stack up?

The Adviser Research Dashboard

Based on data collected through InvestmentNews' annual adviser research studies, this interactive, customizable tool allows you to view detailed data on compensation, staffing and financial performance practices from across the industry.

Learn more »

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

INTV

Advisers beware: tax law has unintended consequences

Commission accounts could be preferable for some clients, and advisers could be incentivized to move from employee broker-dealers to independent channels.

Recommended Video

Path to growth

Latest news & opinion

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

State measures to prevent elder financial abuse gaining steam

A growing number of states are looking to pass rules preventing exploitation of seniors.

Morgan Stanley reports a loss of advisers after exiting the protocol for broker recruiting

The firm said it lost 47 brokers in the fourth quarter, the most in any quarter of 2017.

Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.

Legislation would make it harder for investors to sue mutual funds over high fees

A plaintiff would have to state in their initial complaint why fiduciary duty was breached, and then prove the violation with 'clear and convincing evidence.'

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print