Investing goes digital

How big a challenge is digital to traditional investment? Digital transformation can do many things for the financial services sector – will it revolutionise the way funds are managed or create more regulatory headaches?

The digitisation of finance has been progressing for decades, sometimes at pace and sometimes at a slow plod compared to other sectors. Overnight, customers and investors had to embrace digital banking apps and digital portals as covid shut down more face-to-face interactions with the financial services sector – amazing that until relatively recently the viability of digital signatures was still being hotly debated. While the transition was far from seamless, few will go back to the old ways of banking and investments.

The wider conversation of digital transformation in the financial services sector is about so much more than just the user interface of a retail banking app. The digitisation of traditional financial services – including digital assets, robo advice and the tokenisation of funds – all throw up as many questions as they answer.

Digital assets

While the rise in digital assets has been staggering over the past decade, they’re certainly not a mainstream part of all investors’ portfolios. Younger customers are attracted to products that are being launched in this new and exciting way, but there’s also a vast cohort of people who are waiting to see whether big companies will adopt the assets or not.

I am waiting to see what the leading investment houses like Hargreaves Lansdown etc offer - as yet they have nothing supported. Indeed, it is going to be something of a way we go but I want to see more buy in by the larger firms.

The Wise Society member, April 2022

In April, the Treasury announced that the UK is open to crypto business, with stablecoins being brought into the FCA’s fold, meaning it’s only a matter of time until there’s more regulation imposed on the crypto-asset industry.

There is certainly a gap in the market here for traditional investment firms to offer more dependable and transparent digital assets. As the FCA opened its temporary registration regime for existing crypto-asset businesses, only 20% of firms met the standards required by the FCA that prevent money laundering and terrorist financing. Whether providing an alternative to crypto, or using the techniques of crypto to draw these investors into mainstream funds, there’s certainly space to play for everyone.

Aside from issues around a lack of transparency in how crypto is being used, how does the focus on ESG impact crypto’s appeal? Recently environmental charities WWF, Greenpeace and others formally stepped away from crypto citing concerns over the huge carbon footprint. So as the industry drives towards funds that are ever more environmentally friendly and socially responsible, is embracing digital assets a step in the wrong direction?

Robo advice

We asked our Wise Society community members about ‘robo advice’ in April and on the whole members felt a sense of distrust in the platforms. Though perceptions of the value of digital advice platforms can be clouded by their association with banking apps – with the two being hard to separate in the eyes of the consumer.

Nutmeg stood out for our members as having the best service, with neat functionalities. But our members were largely sceptical about the platforms – even if they themselves invested through them. The products offering ‘robo advice’ aren’t well understood, and that inspires mistrust among consumers. Our insight highlights the need for better, more creative marketing, with clearer stories both for prospects and current investors in the platforms. With a massive advice gap still to solve, online services are a natural route to delivering for those customers with simpler needs – but the industry must bridge the trust and clarity gap.

If your firm is looking to expand its offering to digital advice, our research shows that it’s not enough to launch an app and assume that you can then wash your hands of the wider customer experience. Customers across all age groups have reported wanting a telephone support line as a back up, no matter how digitally ‘savvy’ they are – a chat bot won’t suffice where decisions are nuanced and products complex.

Above all, it’s important to remember that no one size fits all. Creating clear and instinctive digital journeys and testing with your target market is key to getting this right.

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