The Google Advisor?

January 28, 2019

[This article appears in our February 2019 issue of ETF Report.]

 

It’s easy to lose sight of how much innovation permeates the broader ETF-centric investment world. Just a few years ago, whole conferences were created out of nowhere celebrating and explaining (and promoting) quantitative investment strategies under the new moniker of “smart beta.”

The frenetic pace of launches may have slowed, and some of those events may have morphed into the next big idea, but here we are, with dozens of actually pretty-great quant products delivering for investors.

Rise Of The Robo
The same is true with robo-advice platforms. It’s another term the industry mostly hates (like smart beta), and which had its hype-moment for a few years. And while that hype has died down, the use of technology to simplify and streamline the relationship between individuals and their advisors and investments is now becoming just another accepted part of doing business.

In other words, as ETF wonks, we’re often very quick to simply put a new idea through the wringer and then accept the end-state as almost inevitable. That’s awesome—it means we bring innovation in at the genetic level and normalize it, usually for the benefit of the end-investor.

But I think it also leaves us open for blindsides.

At the heart of things, investing is just about applying some intellectual property (an index, a Monday-morning meeting) to a set of investments in a way that’s appropriate for an individual investor’s needs (risk, time horizon, preferences).

Every part of that investment food chain has been made radically more efficient through software: making investment decisions with indexes or individuals; implementing those security ideas in the public markets; packaging them up into funds; and evaluating individual needs and managing the portfolio. The “robo” piece is really just a small chunk of the last mile: monitoring and maintaining someone’s portfolio.

Next Challenge
So if the core challenges of investing are being increasingly automated, or at least software-augmented, what’s the grand challenge for the industry? Distribution. 

If, in a sense, the “investment” part has become easier, cutting through the daily brand-noise of the internet-intermediated media has become virtually impossible. The companies that have done well at cutting through that noise have all built incredible brand-focused franchises: Amazon, Apple, Google. These are companies with enormous reach, intensely loyal consumers and broad-ranging products and services.

Yet there’s not a single financial brand I can think of that has that kind of reach. Sure, there are “Bogleheads” and Berkshire Hathaway zealots, but they’re a far cry from the 1 billion active gmail users, or the 100 million Amazon Prime subscribers.

I’m firmly convinced some, if not all, of these monster brands will enter the investment management business. It could happen in any number of ways: acquisitions, partnerships, home-grown beta products. It could be a new kind of robo, or a subscription-based direct indexing service. It could start with a little light banking and grow into financial education.

But it’s going to happen. And a few years later, we’ll have absorbed them, like we’ve absorbed every innovation.

So the question is, how are you positioned for that coming change?

 

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