Technological advances have helped make the investment process easier and more efficient, and as technology continues to change, the drivers will have a significant impact on ETF operations, distribution and products.
“Digital technologies are fundamentally reshaping the operations and economics of the ETF industry and our view is that the trends we see today will accelerate in pace and impact. This will create what might be euphemistically termed a ‘challenging environment’ for those firms that resist exploring, and adopting technologies such as automated advice, artificial intelligence, blockchain, big data, machine learning and the rest,” according to a PricewaterhouseCoopers research report ‘Live digital or die – The digital challenges that ETF sponsors and service providers must confront.’
For example, four in 10 surveyed executives from firms around the world expect robo-advisors to generate $50 billion to over $100 billion in new ETF flows in the next 5 years. PwC, on the other hand, believe these projections are too conservative and envision flows to surge up to $811 billion.
With the technological advancements and adoption, over one-third of respondents anticipate investment advisor operations to be more disrupted, followed by brokerage services at 29%. Among the top areas to be hit by the advances, pressure on margins was rated as the top threat of fintech to ETFs, followed by increased regulatory risk with cost reduction emerging as the leading opportunity followed by differentiation.
ETF Trends recently caught up with Nigel Brashaw, Global ETF Practice Leader for PricewaterhouseCoopers, to discuss the findings of the survey and research paper.
ETF Trends: What are some ways fintech is already disrupting the traditional financial investment/ETF industry?
Nigel Brashaw: There are numerous ways some visible to investors such as automated advice platforms, some less so such as the use of AI in constructing active funds or in making fund operations more efficient. One thing is clear – the impact of technology is set to increase, perhaps exponentially and it will become increasingly visible and in my view accepted by individual investors.
ETF Trends: Why are investors adopting, utilizing fintech? Are they fed up with the status quo?
Nigel Brashaw: As discussed above only some technology is ‘consumer focusing’, but consumers adopt as in other industries simply because the technology enables improvements that they value – they are making a conscious choice to adopt. Also similar to other industries you have ‘early adopters’ in the vanguard of investors…..over time many of these innovations are adopted by a wider group.
It’s not meaningful or useful to describe investors as “fed up” with the status quo….folk weren’t “fed up” with taxes it’s just that app based ride sharing services offered a new level of service – one thing is clear there is no going back – there are few examples of technology improvements accepted by consumers that don’t move forward so this is a one way street.
ETF Trends: Where can fintech make greater inroads?
Nigel Brashaw: Operations, investment performance and distribution.
ETF Trends: Will financial companies, advisors have to make the leap into fintech to stay relevant?
Nigel Brashaw: It depends – over time certainly yes. If you are in the typewriter manufacturing business that’s a small market today because other products have taken over. However there is a period of time of coexistence – how long this period will be is open to interpretation and debate – my view is that technological change (and consumer expectations) are accelerating so if you are choosing to stand still and watch the change from the sidelines your competitors and investors will become increasingly distant.
ETF Trends: Will fintech replace human advisors?
Nigel Brashaw: To answer this you have to consider where computers have an advantage over humans – analysis. computation and other areas – however there will be a role for humans for some time – human creativity and ability to connect with others is not easily replicated so technology augments humans for now. Probably no different to other industries the amount of tasks automated and delivered digitally will increase with time.
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