With the digitisation of every aspect of our commercial and private lives – long beyond the point of cliché – it seems strange that the technology facilitating life-changing personal investment decisions should lag so far behind that of matchmaking services and second-hand goods auction sites.

But the days of blindly trusting workplace pension schemes, banks and asset managers has given way to a certainly more tech-savvy and perhaps more financially literate generation. In some cases the responsibility has been thrust upon them – the UK lifetimes savings environment is a case in point – but the trend is near universal. It is not just cash-poor first-jobbers and Millennials.

UK pension freedoms, which came into force on 6 April 2015, have encouraged younger investors to be more proactive and demand for improved interaction across all customer groups will force managers to fully embrace digital services.

At the most basic level, UK’s Pensions and Lifetime Savings Association (PLSA, formally the NAPF) data illustrates the steady shift from defined benefit (DB) to defined contribution (DC) pension provision over the five years, with 60% of active scheme members in DC in 2015 from just 32% in 2011.

Although the British Association of Insurers reports that £3.3bn has been invested in traditional annuities since the introduction of the reforms, it reveals that an even greater sum has been spent, £4.2bn, on new income drawdown products.

This demand for greater flexibility represents an obvious opportunity for asset managers. Yet Living Group’s 2015 (updated) ratings for digital content and communication by UK financial advisers suggest that the sector is in denial about the importance of engaging and substantive digital communication.

According to the report, only 40% of the UK’s top 50 financial advisers have smartphone-friendly websites. The average scores across the rated categories “disappoint”, whether website functionality (33%), design (36%) and content (52%), social media presence (39%) and influence (37%) or use of graphics (52%).

Universal trend

An EFMA/Objectway report on wealth and investment managers, the affluent segment in 24 countries, underlined many of these observations. It found that only around one fifth are firmly engaged in digitisation; that almost half of the surveyed institutions reported that their client information is not consistent or synchronised across all channels; that few managers are using analytics for behavioural data analysis; and that just over half use social media for client interaction.

Segmentation of the investor community based on age is no longer appropriate as there are many examples of senior or retired people demanding full online interaction and collaboration services, says Peter Schramme, chief business development officer at Objectway, suggesting that financial institutions will have to start segmenting their investor and client community according to digital awareness and sophistication.

Digital technologies, while potentially disruptive, are creating the opportunity to seek new value, to deliver more tailored service and more contextually informed decision making, adds Leda Glyptis, director at Sapient Global Markets.

“They enable enhanced, real-time portfolio analytics, better tools for risk profiling and attribution and contextual information,” she says. “They can deliver a wealth of tools that can automate manual parts of processes and weaponise portfolio managers and analysts to deliver even more value to their customers.”

According to Edward Glyn, managing director head of global relationship management at Calastone, firms have to be aware that with the wall of pension assets becoming increasingly platformable and smartphone ownership in the 55+ age bracket growing significantly over the last few years, digital intermediation is no longer exclusive to the younger generation.

“More mature, higher-net-worth individuals are progressively using digital services to access their portfolios remotely, seek guidance, explore ideas and execute transactions,” he says. “It would be a serious error for any provider to assume that the generation with the highest amount of disposable assets would not want to engage digitally with their financial affairs.”

The wealth management industry is being disrupted due to the surge of millennials and their need for a more customer-centric approach, according to Kapin Vora, Capco partner and head of North American wealth management.

“These customers are demanding better experiences and service from the brands they interact with,” he says. “If such demands are not met, their loyalty is easily swayed and they will happily embrace any competitor that is able to meet their requirements in a timely manner. This demographic – and older individuals who are actively embracing the digital age – is demanding that their banks and wealth managers keep up with the fast-paced digital environment they are used to in other aspects of their lives.”

Robo-advisers

An obvious question in any discussion of the impact of digital technology on asset management is the extent to which roboadvisers will take significant business from traditional asset management firms.

A study published by Create Research on behalf of BMO Global Asset Management last year acknowledged that robo-advisers present an alternative vision that appeals to investors seeking greater transparency, simplicity and client engagement. However, the study also suggests that the asset industry is well positioned to fend off threats from invaders such as Google-like technology giants.

Glyptis suggests that while the mass affluent sector may have fragmented since the advent of robo-advice and some discretionary allocation has left the traditional fund route and found its way into crowdlending platforms, the disruption doesn’t translate to direct market share.

“Rather, it is more indicative of mindshare and an indirect pressure coming from the expectation that services, connectivity, data visualisation, immediacy of service and accessibility of the experience should be brought to the more traditional – and generally more liquid – customer,” she says.

In the medium to long-term, as technology evolves, people will surely become more comfortable with robo-advice services. But even then, many people will want a mix of services and the reassurance of being able to call a professional adviser or have an adviser check the output, says Steven Levin, CEO of Old Mutual Wealth’s investment platforms.

“In the US, Betterment and Wealthfront were among the first to launch roboadvice services and each has attained over $2bn AuM,” he notes. “Another example is the Schwab proposition, which delivered the same $2bn AuM but within a matter of weeks of launch. Yet while a large amount, it is only a fraction of the $25trn-plus US savings and investments market.”

According to Vora, the Betterment and Wealthfront numbers are also put in perspective by Vanguard’s roboadvisory platform, which launched in May 2015 and already has $12bn in AuM.

“By providing excellent digital customer experience and reducing barriers to entry through low fees and no investment minimums, robo-advisory firms are attracting millennial customers to their platforms,” he says. “Most of these customers have little investment experience and are considered novices by the more traditional firms that do not regard them as profitable. Even the Vanguard robo-advisory offering is attracting existing clients who are entering retirement age.”

Hybrid approach

Objectway’s view is that the ultimate interaction end-game will be a hybrid of online virtual capabilities and various flavours of face-to-face interactions. “This approach puts the emphasis on the technology platform used by investment management firms as it has to be able to support both a pure online roboadviser as well as a pure face-to-face engagement approach and the shades of grey in between,” says Schramme.

Balazs Fejes, co-head global business at Epam Systems observes that AuM growth for the leading robo-advisers has flattened significantly in the last year. “They are not able to offer the full range of banking services available to incumbents and the online model does not lend itself to customised, structured funding deals, complex derivatives and many other services,” he says.

“The incumbents have access to all of this and they also have the resources to build competitive offerings, so it is likely that the banks will start to offer the same services to decrease the impact of robo-advisers.”

Clients expect to be able to do whatever they want to do online but, at the same time, they want personal help available immediately if they need it so firms are finding it difficult to step away from providing client advisers, adds Fejes.

Cyber security

Client demand for easier access to services is not however easily reconciled with the need to provide a secure environment for these services. “New digital social interaction models are changing the way clients view privacy, security and trust,” says Fejes. “Socially active clients now share details that, in the past, they would not have while still expecting security and protection.”

While cyber security is and will continue to be an area of concern, “it will not stop companies from creating and delivering easier ways of doing business,” says Vora. “Just as the digital landscape continues to evolve, there are new mandates for cyber security and the criminals are becoming even more innovative. For example, the use of retina scanners and fingerprint authentication is much more popular and less costly to implement for organisations.”

These new techniques align well with the information-anywhere philosophy and help to minimise security threats in vulnerable areas. Cyber criminals will continue to find ways to get around these obstacles, but Vora believes the rate of advancement in the cyber security world will outpace the criminal mindset.

High-net-worth individuals spend a significant amount of time online and regulators, especially in Asia, are becoming prescriptive over the types of services that can be offered online and the levels of protection required around these services.

“There are many security, authentication and identity management start-ups in the market and mobile device vendors are also innovating in the security and identity area,” adds Fejes. “Biometric identity management such as face recognition, voice recognition and fingerprints is already being used.”