If you look at technological advancement over the course of the last two decades, you’ll see that nearly every industry has been touched (and in some instances revolutionised) by innovation.
Still, some industries have been relatively slow to adopt new technologies, however, with the world of asset and investment offering a relevant case in point. It was not until the dawn of the 21st century and this marketplace started to evolve, as risks and barriers to entry were removed while passive investments became a viable option for clients.
Below, we’ll look at this in further detail and ask how technology empower investment management firms to deliver their services.
The Rise of Passive vs. Active Investment Strategies
Historically, investment and fund management required financial experts to carefully select assets in behalf of their clients. Similarly, these individuals would then be charged with minimising risk and exposure, while delivering outsized returns over a specified period of time.
Technology has created new avenues to market, however, with investors now able to leverage so-called ‘passive investments’. This methodology is become a significant part of the investment world, with PWC estimating that it will drive an estimated 35% of the industry as a whole by the year 2020 (these funds have already generated well in excess of $1 trillion during their time).
In simple terms, passive investments are underpinned by automated software, which automatically selects trades and maintains a desired level of exposure in accordance with a detailed algorithm. This has become a key element of the investment and asset management world, just as it has in the world of direct financial market trading. Here, concepts such as exchange-traded funds (ETFs) and automated trading have become extremely popular, primarily because the optimise efficiency and minimise the risk of human error.
Driving Lower Fees and a More Accessible Market
The advent of technology has also enabled operators to reduce their commission fees, as there is far less human involvement or justification for lofty commissions such as 2%.
This has subsequently helped the industry to remain relevant in the digital age, particularly after yields began to decline dramatically at the turn of the century. By integrating automated software and creating passive investment strategies, firms have been able to reduce fees and appeal to a broader demographic of investors.
The idea of accessibility is important, as technology has also enabled investors to access their portfolios directly through a single interface.