A number of forces appear to be driving this evolution, including regulatory change, such as the Retail Distribution Review (RDR) and the government’s effort to reform the pension, annuity and savings market. Ongoing market forces, such as the continued shift of pension risk from the employer to employee as defined benefit (DB) schemes are superseded by defined contribution (DC) schemes, are also catalysts for change.
The digitalisation that has swept through many industries had, until relatively recently, largely left financial advice services untouched. However, as investors seek affordable, efficient solutions for managing their money and making financial decisions, digital advice services have begun to increase in popularity. Consumers increasingly expect to engage with technology to gain insights on their investment portfolios, especially when making critical decisions around long term savings and retirement.
Closing the advice gap
Another key trend driving interest in digital advice is ‘the advice gap’. An estimated 16 million people in the UK cannot afford financial advice with many more unwilling to pay for it for anything other than major life decisions.
This is leading to an emergence of online digital solutions from both established players and new entrants that is offering individuals a new way of managing their money. These solutions are often simple, transparent, and have to have a key eye on cost, which is leading some to build portfolios using exchange traded funds (ETFs).
ETFs and online investors
ETFs have emerged as the one of key investment vehicles for the growing online market due to their breadth of offering, in terms of asset classes, ease of use, and their low costs relative to some other financial instruments. ETFs allow investors who are building global multi-asset portfolios to access many geographies, asset classes and securities with a small number of funds. It also allows them to precisely express an investment view in a quick and easy way. The first ETF in Europe was launched in 2000, and has since grown into a $500bn industry, with the global industry accounting for over $3trn of assets.