Asset managers must adapt to serve investors in an age of disruption

 
Martin Gilbert
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The low interest rate and low growth environment is creating real challenges for institutional and retail investors (Source: Getty)

Today's investors and their advisers face a torrent of change from all quarters.

Political, economic and regulatory turbulence is matched only by the speed at which technology is transforming business models, choices and decision-making. The low interest rate and low growth environment is creating real challenges for institutional and retail investors.

These challenges form the central theme of this year’s Aberdeen Investment Conference, which takes place in London tomorrow, and will be attended by leading politicians and industry participants. How does the industry navigate this disruption and become empowered and so serve the long-term needs of its customers?

Such have been the marvellous year on year rises in longevity that greater savings go hand in hand with longer working lives. The three stage life that has characterised the twentieth century – education, work, retire – is being replaced by a more fluid multi-stage life in which work remains part of our longer lives for longer.

Read more: Investing beyond 100: Rising life expectancy changes everything

Aberdeen commissioned Gabriel Research, a sector specialist, which last month polled institutional investors, independent financial advisers and retail investors to get on-the-ground views.

The findings highlight the potentially disruptive forces at work across the investor landscape and examine how asset managers and policy-makers must respond to ensure that, instead of being overwhelmed by the pace of change, investors are supported and empowered.

First up, the industry needs to absorb and act upon the strong message delivered on Friday by the FCA, whose major report criticised asset managers on value for money and lack of transparency. Asset managers play a vital role in helping investors achieve their financial goals and the FCA’s proposals will help deliver this. They will also ensure the industry will be more attractive on the global stage by leading the way in best practice.

Given recent events, it is no surprise that political uncertainty was cited by three-quarters of institutional investors and consultants as the most disruptive force, followed by the twin challenges of ultra-low interest rates and the threat of global recession.

Read more: The behavioural biases that explain why Mr Market is unruffled by Mr Trump

To improve the savings rate, two-thirds of retail respondents said that they would put more money aside if they earned more. Close to half would save more if the government gave better tax incentives, and a (still significant) one in four would buy a bigger piggy bank if their employer matched or bettered their pension contributions.

On financial education, the view from institutional investors, consultants and IFAs was clear: more than 80 per cent believe the industry and policy-makers should allocate more resources with respect to trustees and individual investors.

When asked to propose one change that would empower the investors of tomorrow, financial education was among the top recommendations. This included suggestions to make financial education mandatory in schools, preferably with core GCSE status.

Researchers also probed the impact of financial technology. For example, the wider deployment of so-called “Robo advisers” is radically changing the investment experience for Generation X. This is the generation which is steadily taking control of billions in investable assets.

Read more: Augmented reality could revolutionise financial advice

In this area, the trend is clear: advisers need to expand their digital capabilities to benefit the consumer. The successful advisers of the future could be more akin to a GP – the first port of call for a financial health check but able to call on a cadre of specialists where necessary.

Industry participants need to embrace new technology, foster a culture of innovation and stay focused on human capital and the team-based approach that are so important to success. At Aberdeen, we have a dedicated innovation committee.

Amid the technological disruption and political change, a commitment to long-termism is one of the most empowering forces for good in the investment landscape. This focus on the long term – investing in good companies, bonds and property – has served Aberdeen well since we were founded in 1983 and navigated several cycles of uncertainty.

A solution to the under-savings crisis depends on the three pillars of the UK’s long-term savings system – state, workplace and retail provision – working efficiently together.

This means a state pension which is simple to understand, workplace saving as a matter of course, and private provision where value for money is the rule. The UK has made progress in all these areas. But as we will discuss tomorrow, there is much more to do.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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