Page 39 - Profile's Unit Trusts and Collective Investments 2021 issue 2

History of Collective Investment Schemes

Direct Access
The growth of the internet led to speculation in the late ‘90s that the character of the industry
would change, because of the ease of access to financial products it creates, to the point where most
transactions in the collective investments industry would occur directly between investors and
management companies (or LISPs/platforms) and that the role of financial advisors would diminish.
Such predictions seem even more relevant today. Investors across the spectrum of age and
education show a greater awareness of the costs of financial advice, partly because of the rise of
passive investing, which challenges the value of active management and, by implication, the value
of commissions paid to advisors for fund selection.
In the internet-driven world, the vast majority of retail products in the financial sector can be
accessed by investors directly from product suppliers. This is particularly true when it comes to
investments, but related products like life insurance are also increasingly available online.
Technology experts believe we are only at the start of the Fourth Industrial Revolution (4IR),
which has already changed how consumers interact with service providers (retail investors, for
example, trade shares using free phone apps, and even conservative investors can rebalance
portfolios or switch funds online with the click of a mouse). These developments have made many
financial advisors worried about disintermediation.
Articles appear frequently discussing the roles that financial advisors will play in the future.
The rise in direct access investing via web browsers and apps confirms survey data that suggests
younger people are increasingly willing to manage their own investments using online tools, a
trend that may necessitate changes in traditional advice models.
It can be argued that many retail investors lack sufficient understanding of the financial
markets to make appropriate investment decisions even with the help of online tools. Financial
advisors in the future may act as coaches rather than intermediaries.
The long-term impact of the trend towards direct investment, however, remains to be seen. In
some countries – the UK and Australia being particular examples – less affluent investors find it
increasingly difficult to get advice from financial planners. The continuing trends of online access,
disintermediation and increased regulation may adversely those segments of the population most
in need of financial advice.

Robo-Advisors
A robo-advisor is a computerised “financial advisor” providing financial guidance – and
sometimes full-blown portfolio management – via an online platform. Robo-advising as a defined
service category emerged in 2008. Global robo-advice assets under management (AUM) have grown
dramatically and now represent a sizeable segment of the market, especially in the USA.
Robo-advisory platforms fall into two main categories – “pure” robo-advice services, and hybrid
services. The latter allow access to human advisor
services if the user gets stuck or wants help, and/or
include reviews of investor portfolios or decisions
by actual human beings. Vanguard Personal
Advisor Services and Schwab Intelligent Portfolios
are examples of hybrid services; Betterment and
Wealthfront are examples of pure robo-advice
platforms.
The advent of robo-advisors can be seen as a
logical progression from the risk capacity and needs
analysis software programmes that have been used
by financial advisors for decades. Given the ubiquity
of internet and broadband – and an increasingly
computer-savvy population – a rapidly expanding
segment of the investing public feels able to complete
such questionnaires without assistance.

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Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts