UK  /dɪˈmɒkrəsi/

a situation, system, or organisation in which everyone has equal rights and opportunities, and can help make decisions

Times are changing, as are expectations. Is access to Investment Solutions changing?

I saw a comment from Iqbal V.Gandham from his time as UK Managing Director at eToro, which I’m sure resonates among many, he said: “The rich are taught to invest and the rest are told to save. Forget the idea that most Brits don’t care about investing. This research proves people from all walks of life want to get involved. The issue is that many are not being given the opportunity which perpetuates the myth that investing is something exclusive – the preserve of the rich”

I asked myself, where does this feeling come from, is investing actually just for those with deep pockets or is that just the way we perceive it to be?

I wanted to dig a little deeper and decided to start with something we all have in common regardless of wealth, and that’s a banking relationship. This is something we all hold, some long-term, some short, some just online but it’s the place we typically go for all things related to finances. It’s fair to say that for some with less exposure or experience in the wealth industry, it’s easy to think that your bank is the only place to invest.

With that in mind, I took brief look at what some of the top banks had to offer for a more bespoke service and what the entry points were. The first was £4 million. If I meet the criteria, I can have access to bespoke investment services with wealth and succession planning – giving me direct access to a suite of wealth solutions, which also helps to protect my family in the long term. Whilst the £4 million seems outlandish to most, there are actually more reasonable entry points; £100k, £75k and even some as low as £20k, but for many this just isn’t a possibility.

Is it any wonder that newer investors see investing as confusing, expensive, and out of reach…? That’s the feeling according to over two fifths (44%) of the British public, that think investing is an activity reserved only for the rich (Source: by global multi-asset investment platform eToro)

I’ve picked on some of the high-street banks deliberately, and this is because they typically have the monopoly over large customer pools, with details from spending habits to the type of car that you drive, and with their financial might I believe should be spearheading the access for all investment approach.

Are we seeing changes in the Wealth industry?

I feel that with ever-changing demographics, a strive to be more efficient through the use of technology and a growing social media presence means that access to Investing is no longer defined by age or wealth strata, and this is impacting the industry’s approach to delivering Investment management solutions.

The process of democratising Investment solutions comes at various levels and should ensure that there is access for all. The most important is accessibility to what was only previously offered to high net worth (HNW) individuals and making the services and solutions for these customers mass market.

We’re not there yet, but be sure to keep an eye on these key areas – they’ll naturally close the gap:

  • Advancements in technology – AI and machine learning
  • Healthy competition amongst wealth providers
  • Evolution of advice solutions (Hybrid & Robo)
  • The shift from traditional f2f banking relationships to online functions

The objective for provider, consumer and the industry as a whole is to close the gap, reduce costs and produce future proof solutions that are driven by ALL types of customer’s needs, not just those with financial power. I don’t think for one second that this is just customer driven, unfortunately. Tougher regulations, better transparency and increased consumer protection over recent years has caused costs to surge for providers, meaning they are unable to solely rely on the fortunate minority and instead forcing them to relax entry requirements and minimums for customers.

A new type of customer. A new expectation.

Those newer to investing are now expecting the same access to high return investments, planning solutions with low fees and best in class customer service as those defined as being HNW’s or private bankers. This has caused the perfect storm and a number of start-up firms have been capitalising. As a result, many ‘disrupters’ have entered the market over the last ten years forcing others to embrace change and digitise solutions as a direct response to this.

Earlier on I looked at some extravagant entry points for a personalised investment solution, so it’s only right I look to back up the claims that investing is now moving in the right direction with firms looking to offer up a more personalised service, albeit digital:

  • Born in 2012, MoneyFarm, has an entry point of just £500. For the purpose of this review, I started with a £5,000 investment and with this you are paying just £4.33 per month fees. You get a bespoke investment portfolio, active portfolio management and access to an investment consultant. They also have a tiered fee charging system, which doesn’t penalise investors with less to invest initially.
  • Nutmeg, established in 2011, has an even lower entry point of £100, but based on £5,000 has just £4.25 in fees per month for their fully managed option. You also get a tailored investment portfolio with active portfolio management.
  • Finally, ExoInvesting , established in 2018 and using Nucoro’s technology, their primary aim is to give private investors access to personalised wealth management solutions which were once only available via private banks. A higher entry point of £5,000, and monthly fees starting at £4 a month. You have the option to utilise their automated AI technology to form a bespoke portfolio.

All data correct as of April 2022. Scenario was based on a retail investor looking to open a Stocks & Shares ISA. Other options and providers are available. This is for information purposes only and does not constitute investment advice.

In conclusion.

The advancement of technology is directly contributing to the proliferation of accessible Investment solutions and the rise of fintech’s offering low-cost, automated investments imitating traditional portfolio managers in the form of algorithms managing customer portfolios. Tech giants such as Google and AWS are already established in the financial services industry, with more big players likely to follow suite. Many of us expected robo and hybrid-based platforms to put at risk high-end wealth management, taking over its market share, with the platforms catering to investors with lower assets. Privileges that used to be reserved exclusively for HNWs are becoming available for regular investors – The more start-up’s, disrupters and new players into the wealth space will continue to drive costs down and access for all up.

Financial institutions have played catch-up to challenger banks and fintech companies for a number of years now. Digital platforms have catered mostly on the needs of retail investors, while HNW clients continued to rely on a personal, relationship-based service. However, wealth managers are now realising that this model is not future proof, in that HNW clients expect a digital experience and services as part of their overall manager relationship. The challenge is to provide a low-cost, digital experience that matches the level of their personal service.

Effectively serving the world’s wealthy is going to get far more complicated in the years ahead. As the demographics of wealth shift, so will the needs and expectations of wealth clients. Providers need to offer simple, appealing, and cost-effective investment solutions across their existing client base.

At the start of this blog, I included a definition of democracy, which was “situation, system, or organisation in which everyone has equal rights and opportunities, and can help make decisions”

Do you feel that within wealth we have a democracy, do we have equal rights and opportunities for all investors, or is there still work to be done?

Chris Lamb

Wealth Consultant