Will technology make the current relationship driven model obsolete?
What we have witnessed in the last 40 years in the financial industry is simply breath taking. First, we had the big bang in the ‘80s and the deregulation of financial markets. Then, we had the emergence of electronic exchanges and machine-driven orders in the ‘90s. Followed by a massive global bull market that, save for a few small wobbles, is still going strong and has created more wealth and investable capital than at any time in the history of mankind.
But, we also made advances in how we deal with our investments from an operational standpoint. Far and away, the biggest innovation has to be the creation of so called ETFs (Exchange Traded Funds). Last I looked, there were more than $4 trillion in assets under management in these extremely efficient investment vehicles, whereby we can forgo filling out 38-page fund subscription forms, and just buy or sell our funds in an instant in our brokerage account. And there is more, we now also have portfolio management software, strategic asset allocation models and an abundance of research (mostly) freely available on the internet. And if we don’t want to talk to a human being, we can even use a so called robo-adviser to manage our investments.
Does all of this mean that we won’t need to do much of anything going forward, least of which pay fees to our private bankers, asset managers or wealth advisers? I don’t think so, simply because there is a limit to what machines can do, particularly when it comes to being human. We have every evidence that, on a whole, humans need other humans to survive. And clearly, most of us would still prefer to speak to another human being when it comes to our money. You know the stuff that we have spent a lifespan accumulating and that which will keep our family safe, pay for our children’s education and provide for us when we are sick and old? Yes, that money. Would you really just want to click a few buttons, read a couple of disclaimers and hope for the best?
Or would you rather give it to someone you trust, someone who has passed your emotional tests and most importantly, someone you can call in case something goes wrong? And therein lies the future of asset management: the products will become ever more homogeneous, but people will always buy trust and people will always value (and need) service, particularly those people with a lot of money. Which is why humans will never disappear entirely from the asset management offering. Now at what price? Well that is an entirely different story.