Are you ready for a whole new world?
In a world of anaemic interest rates and market volatility experienced across the globe, investors and fund managers are taking a long hard look at themselves in an effort to find that elusive alpha which is hard to come by.
At the recent Momentum Investment Summit, Kevin Hinton, Head of Investment Distribution: Momentum, asked the question that many fund managers may well be asking themselves in the current environment: where do you really look to direct your clients investments during times of economic uncertainty?
The world of fund managers
The world of fund managers is often a paradigm. When it is a bear market, active managers come to the fore as it should not be hard to beat the benchmark; when it is a bull market, passive managers come to the fore as they find it relatively easy to track the benchmark.
However, investing is far from an exact science and we are certainly living in a dichotomous world. Despite the protracted recovery from the global financial crisis, Hinton points out that active managers are struggling to beat the benchmark. A report by fin24.com, which was published in July, shows that as much as 74% of South African active fund managers underperformed the index last year; yet we haven’t seen passive investing coming into the mainstream.
This is concerning if we look at the behaviour of the public. While investing is not an exact science, the public tends to look towards fund managers and financial advisers as fonts of knowledge as they are professionals within the industry. Hinton elaborated on this by pointing to the fact that current research shows that as much as 67% of people say that there is believability when an academic or an expert says something.
Even more concerning for fund managers are the platforms available to the public to voice their discontent. Hinton points out that the public is bold and unafraid to go to social media to raise the red flag.
Outcomes based investing
Investing with a purpose is becoming the buzzword in the investment industry. In a world of traditional products, how can product providers and financial advisers market and manage products that are tailor made to fit client’s specific needs?
Sonja Saunderson, Head of Portfolio Solutions at Momentum Investments, pointed out that while this seems like a daunting task, it is achievable. “Outcomes based investing aims to help people meet their personal and lifestyle goals. This takes into account personal needs, lifestyle wants and legacy aspirations,” said Saunderson.
She added that there needs to be recognition in the market that there are various, distinct investment styles and that these styles need to be adapted to suit the client’s specific needs. A company and an adviser can no longer afford to put clients into specific boxes where the financial services industry has failed the client in the past. “There needs to be a definite mental shift whereby success is redefined. Success needs to be viewed from the viewpoint of the investor and not the practitioner,” said Saunderson.
Drivers of change
There are a number of movements which can be seen as specific drivers towards this change of thinking.
Darren Zaman, CEO: Brooks Macdonald International, said that the improvement of technologies and the mass adoption of these technologies is the main driver of change.
“Technology is becoming increasingly disruptive, if we think of how Uber and Airbnb have changed their industries; we are in for a possible industry shakeup. There needs to be a significant technological leap forward in the investment industry in order for companies to remain relevant,” said Zaman.
One of the defining features of this is the ability of new entrants to enter into the market and make an impact. One just needs to think of how the industry disregarded Uber when it was launched and how it has grown into the company it is today.
As Hinton pointed out, social media is making a big impact as it is enabling consumers in ways that were never possible before. Not only do consumers have a way to voice their concerns, they also look to social media as an advice platform. They will ask their friends or colleagues if a specific product is working for them or not.
Driver challenges
There are also challenges associated with these drivers. Zaman pointed out that technology will completely challenge the traditional concept of pricing and value as a new distribution model will be used to facilitate the transaction.
There also needs to be a mindset change in terms of payment models. Crypto currency is a fast growing trend whereby consumers prefer to be paid out in virtual currencies such as bitcoins. This is the currency of the internet where investment can easily be made in other areas.
Editor’s Thoughts:
These changes may leave advisers and product providers feeling like Christopher Columbus venturing out to discover the new world. Is the industry ready for such a radical change? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
