The digital revolution has generated numerous apps and platforms for clients to manage financial investments, and the sector must constantly adapt to keep pace. Doing so requires careful trending monitoring, and we have some key shifts to share in our latest report on the Impact of Technology on Financial Services 2023: Investment Banking!
We share a few key takeaways below, but the report highlights so much more, including:
- Key companies in the sector
- The strategies each company employs to drive change and carve out a niche
- And the corresponding sentiment each generates in the market
It also shares predictions for where the space is headed to inform strategic planning in the coming months. Check out the preview below!
Key Takeaway #1: The rise of the robo-advisors
The trend for robo-advisors has risen swiftly in the past few years. These offer automated management of investments at a far lower cost than human financial advisors. While consumers generally feel positive about robo-advisors, there have been concerns about the lack of human oversight.
Robo-advisors disrupt the investment industry by leveraging algorithms and computer programs to automate decisions around investing, how portfolios are constructed, and how assets are allocated. They’ve made passive investing accessible to a wider range of consumers, without a middleman like a broker or financial advisor, and made access and management of investments easier by providing a simple and user-friendly interface. Investors can focus on other important areas of their lives while their investments are managed automatically.
Younger generations increasingly use robo-advisors because they are convenient, affordable, and user-friendly. Older investors, however, still prefer the personal touch of a human financial advisor.
This trend may be due to younger investors’ familiarity with digital tools, having grown up with the internet and mobile devices as part of their daily lives, and the fact that younger investors tend to have smaller, more easily managed portfolios compared to the older generation.
Some critics argue that robo-advisors, by not providing the same level of personalized advice as human financial advisors, can leave investors exposed to unforeseen risks. Also, there are concerns about the transparency and accuracy of performance metrics used to evaluate some portfolios.
While robo-advisors evolve, it will be important to address these concerns and ensure that investors have access to reliable investment options that align with their goals and risk tolerance.
Key Takeaway #2: Greener pastures with ESG investing
A strong emerging trend is evaluating the environmental, social, and governance (ESG) factors of companies when making investment decisions. This trend has led to a growing number of investment products that incorporate ESG factors into their offerings. While this kind of investing seeks to generate financial returns, it also promotes sustainability and social responsibility.
ESG investing has gained popularity as we all increasingly consider the impact of our actions on the environment and society. As a result, the number of investment products that incorporate ESG factors into their strategies has surged. It’s likely that ESG assets will make up more than 20% of total global assets under management in less than five years, and this is driven primarily by client demand.
Advocates assert that companies aligned with environmental, social, and governance principles produce favorable outcomes for society and should be preferred investments over those not aligned with these principles. Critics, however, contend that ESG metrics are imprecise and susceptible to manipulation.
For example, in recent years, some companies have turned to buying up farmland to offset their climate emissions, which has negatively impacted local communities. The importance of prioritizing the rights and needs of local communities in efforts to address climate change through land use has been overlooked. This leads to skepticism, as it’s a way for companies to manipulate ESG scores. It makes them appear more attractive to socially responsible investors.
Instead, the tide is shifting toward impact investing.
Key Takeaway #3: Impact investing gaining traction
Impact investing, really a subset of ESG investing, specifically targets investments intended to generate measurable social or environmental impact alongside financial returns. As the investment sector shifts towards socially responsible strategies, investors are becoming aware of the impact of their investments on society and the environment. It’s really the next stage in the evolution of a sustainable approach.
Thematic investing has also become popular in investment decision-making, allowing investors to build portfolios aligning with specific themes like technological innovation, renewable energy, or aging demographics.
Socially Responsible Investing (SRI) is a type of thematic investing focusing on generating financial returns while promoting positive social or environmental impact. The robo-advisory industry has picked up on this trend, allowing investors to select pre-built thematic portfolios around specific industries or social issues.
Our Impact of Technology on Financial Services 2023: Investment Banking shows us how the sector has changed, with these trends reshaping the traditional landscape and the impact it is having on brand heath. It is something that will continue to build in the future.
Robo-advisors have made passive investing more accessible to a broader range of consumers thanks to low fees and user-friendly interfaces. The growing popularity of ESG investing, including impact and thematic investing, has led investors to align financial decisions with ethics while generating returns.
There’s much more to learn in the Impact of Technology on Financial Services 2023: Investment Banking report, so be sure to download it today. And we’re happy to take you on a tour of our platforms to show how easy emerging trend identification can be in any industry!