One key role of the asset management industry is to help people secure their long-term financial future. However, one third of households in the UK have no savings and two thirds have less than £1,500.1 Moreover, the picture doesn’t look like improving any time soon: the UK household savings ratio fell to 3.3% in December 2016, the lowest level since records began in 1955.2 In an era when technology is increasingly embedded in our lives, can it help reduce the savings gap?
At Vanguard, we think technology can help in three ways. It can:
1. Improve financial literacy by communicating key topics to investment beginners;
2. Help investors identify the best products for them via online tools; and
3. Drive down the cost of investing by delivering efficiencies to product providers.
As consumers, we increasingly demand instant access to information. Investors are no different. They want to be able to research, select a provider and transact quickly. Furthermore, access to portfolios via a phone or tablet isn’t a nice to have add-on, it’s a must.
But it isn’t just about developing a website that looks nice. Companies need to develop digital interfaces that are intuitive and engaging and which tell the customer something that improves their knowledge. Attention spans are short, so customers need reasons to stay online. That reason could be videos, infographics or even games. All of these can help wary investors engage with a subject they find intimidating.
Marrying people to the best products for them
When used well, technology can be used to great effect to help investors make better decisions. Online tools can help an investor understand their attitude to risk, create an asset allocation strategy and then implement the solution. Many people argue that computers are already doing this better than humans.
More subtly, technology can be combined with psychology to nudge consumers into better investing behaviour. Logging on to some websites you see attention-grabbing signals highlighting moving share prices. This is designed to encourage trading with a fixation on short-term performance. A more constructive nudge in Vanguard’s view, is the take up of auto-increases in US defined contribution pensions. Using this technology, members automatically pay more into their pensions each year.
Lower costs can help close the gap
Just like in other industries, asset managers already routinely use technology to process large volumes of transactions, sort through data and reduce error rates. Forward-thinking fund providers will pass these costs savings on to consumers, bringing two important benefits. First, as numerous reports have shown, lower costs can lead to improved performance for investors. And second, reducing the cost of investing lowers the barriers to entry for less affluent clients, potentially bringing millions of new investors into the market.
Vanguard embraces change
In the UK, Vanguard is embracing technology with the recent launch of our Personal Investor website. It’s designed to be intuitive and engaging; it incorporates a wide range of investment education and tools and features low investment minimums.
In the US we have taken things further, whilst acknowledging that human interaction is still an important part of making key financial decisions. Our Personal Advisor Service combines sophisticated technology with a qualified adviser (accessed online) to provide a bespoke, goals-based plan. The service uses technology for the tasks that are often repeated (creation of plans, asset allocation and rebalancing) while the adviser’s role is to act as a behavioural coach to remind the investor of their plan in times of stress.
If we don’t do it, someone else will
Closing the savings gap requires bold thinking. Is the asset management industry up to the challenge? Recent research from PwC found “asset and wealth managers have become dismissive of technology innovations and disruptions to their industry.”3 If this doesn’t change, disruptors from outside the sector could easily step in. Chinese online retailer Alibaba has already created the world’s largest money market fund from a standing start in 2013.
The UK equivalent may already be out there.
This document is directed at professional investors and should not be distributed to, or relied upon by retail investors.
This document is designed for use by, and is directed only at persons resident in the UK.
The opinions expressed in this presentation are those of individual speakers and may not be representative of Vanguard Asset Management, Limited
The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not a reliable indicator of future results
Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.
© 2017 Vanguard Asset Management, Limited. All rights reserved.
The positions expressed in this material are those of the author as of July 5, 2017 and may or may not be consistent with the views of Brown Brothers Harriman & Co. and its subsidiaries and affiliates (“BBH”), and are intended for informational purposes only. Furthermore, these positions are not intended to predict or guarantee the future performance of any currencies or markets. This material should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision.
IS-2017-07-03-3044 Expires 07/19/18
2 Source: Office for National Statistics
3 PwC Asset & Wealth Management Insights, Exploring the impact of fintech Jan 2017