How technology is helping to bring investing to the masses

Wealth man­age­ment has tra­di­tion­al­ly been the pre­serve of the ultra-rich, but tech­no­log­i­cal inno­va­tion is open­ing up the mar­ket. From robo-advis­ers to trad­ing apps, there are a myr­i­ad of solu­tions promis­ing to democ­ra­tise invest­ing, but can they pro­vide the same, or bet­ter, out­comes than tra­di­tion­al wealth man­agers? 

Dozens of new names have sprung up in this mar­ket, many of them min­nows com­pared to the tra­di­tion­al play­ers. Even Nut­meg, which claims to be the largest dig­i­tal wealth man­ag­er, has just 100,000 cus­tomers; com­pare that to the 4 bil­lion logins to Lloyds Bank’s dig­i­tal bank­ing ser­vices in 2019.

Dig­i­tal wealth man­age­ment plat­forms in par­tic­u­lar have done a lot of work to democ­ra­tise invest­ing. Where once the mar­ket was huge­ly com­pli­cat­ed, usu­al­ly required advice and need­ed a large cap­i­tal sum to start, investors can get going online in only a few min­utes and with as lit­tle as £25 a month. Com­bine this with the coro­n­avirus pan­dem­ic and asso­ci­at­ed lock­downs, and we’ve seen a huge spike in activ­i­ty.

Indeed, some argue it is all too easy to “plug and play”. Many stock mar­ket novices who began invest­ing last year in lock­down sim­ply googled “trad­ing apps”. Such a search brings up dozens of options, includ­ing some unreg­u­lat­ed firms with prod­ucts more akin to gam­bling than invest­ing such as cryp­tocur­ren­cies using blockchain; it’s the Wild West of invest­ing.

The impact on investing

The Finan­cial Con­duct Author­i­ty (FCA) has fears for the new breed of self-direct­ed investors encour­aged by the acces­si­bil­i­ty of invest­ment apps. The FCA says: “Those invest­ing in high-risk, high-return types tend to have a high degree of con­fi­dence and claimed knowl­edge. How­ev­er, the real­i­ty of their behav­iours and beliefs around invest­ing indi­cate that this can be mis­placed.” 

For peo­ple who lack the con­fi­dence in self-direct­ed invest­ment, robo-advis­ers such as Wealth­i­fy, which is backed by Avi­va, sug­gest a mod­el port­fo­lio based on whether the investor describes him or her­self as cau­tious, ten­ta­tive, con­fi­dent, ambi­tious or adven­tur­ous. It will then pro­vide ongo­ing man­age­ment. The min­i­mum invest­ment is just £1. But do such prod­ucts work for the ordi­nary investor? There is increas­ing evi­dence that they do.

The finan­cial web­site Bor­ing Mon­ey invest­ed £500 with 15 plat­forms and robo-advis­ers in their “medi­um-risk” port­fo­lios or own-brand mul­ti-asset funds with port­fo­lios that had clos­est to 60 per cent in equi­ties in the first quar­ter of 2018. In Jan­u­ary 2021, Mon­ey­farm, Van­guard and Nut­meg were the top per­form­ing port­fo­lios net of charges. After fees, the aver­age bal­ance across all robo accounts in 2021 was £552, an increase of 11 per cent over a three-year peri­od. By com­par­i­son, over the same peri­od, the FTSE 100 was down 14 per cent.

Hol­ly Mack­ay, Bor­ing Mon­ey chief exec­u­tive, observes: “As robo-advis­ers expe­ri­ence con­tin­ued growth, longer track records are shift­ing the focus from who has the snap­pi­est app to a more fun­da­men­tal per­for­mance deci­sion.

“Over the past three years, my £500 invest­ment has made me £86 more with one provider than anoth­er. This sort of dif­fer­ence is mate­r­i­al and cur­rent­ly large­ly impos­si­ble to see if you are a retail cus­tomer shop­ping around for a ready-made solu­tion.”

For investors look­ing for a more tra­di­tion­al wealth man­ag­er, the dig­i­tal Brewin Port­fo­lio Ser­vice allows con­sumers to access mod­el port­fo­lio solu­tions from £500.

Oth­ers pre­fer to go it alone: for them the more estab­lished play­ers in the self-direct­ed mar­ket, such as Har­g­reaves Lans­down, Inter­ac­tive Investor and AJ Bell, may pro­vide com­fort. At Bris­tol-based Har­g­reaves Lans­down, web­site logins were up 60 per cent and app logins were up more than 150 per cent over the last year, indica­tive of the lock­down invest­ing mania. 

At Inter­ac­tive Investor, around 80 per cent of trades were made on its app using a desk­top com­put­er or lap­top last year com­pared with around 20 per cent using mobile phones. 

Technology’s impact on savings

In the sav­ings mar­ket, there has also been some­thing of a rev­o­lu­tion in the past cou­ple of years. Mon­ey­hub has devel­oped open-bank­ing tech­nol­o­gy to enable con­sumers to receive an overview of their finances on their device at a mod­est cost. Dis­rup­tors like Raisin and Akoni Hub have made it eas­i­er to man­age cash sav­ings across a range of banks and build­ing soci­eties.

These cash-man­age­ment plat­forms enable savers to access an array of sav­ings accounts, swap accounts to get a bet­ter inter­est rate, change the terms of their access, secure full Finan­cial Ser­vices Com­pen­sa­tion Scheme pro­tec­tion of £85,000 by spread­ing mon­ey across dif­fer­ent banks and accounts, with­out the has­sle of form fill­ing and sup­ply­ing ID every time a change is made.

Once the appli­ca­tion process is done, this enables the plat­form to search for new terms for the saver who sim­ply decides how much access or notice they want to give; the plat­form does the rest. 

Kay Ingram, direc­tor of pub­lic pol­i­cy at retire­ment advis­er LEBC, explains: “These tools are rel­a­tive­ly new but have the pow­er, once wide­ly adopt­ed, to reduce orphan assets which cur­rent­ly account for £15 bil­lion of sav­ings, accord­ing to the Trea­sury, and £20 bil­lion of pen­sion funds esti­mat­ed by the Asso­ci­a­tion of British Insur­ers.”

Per­son­al mon­ey man­age­ment apps like LEBC’s Hum­ming­bird use open-bank­ing tech­nol­o­gy to give the user an overview of their income and spend­ing, invest­ments, sav­ings and bor­row­ing. This includes cur­rent and sav­ings accounts, ISAs, pen­sions and invest­ments, over­drafts, cred­it cards and mort­gages with more than 80 insti­tu­tions, but have yet to be wide­ly adopt­ed.

Tech has also made its mark at the large insur­ers. Roy­al Lon­don claims its acqui­si­tion of Wealth Wiz­ards, a dig­i­tal finan­cial advice plat­form that can auto­mate key parts of the advice process, should ulti­mate­ly mean advice is more wide­ly avail­able.

While some investors, espe­cial­ly those with big wal­lets, still pre­fer the expe­ri­ence and emo­tion­al intel­li­gence of a human advis­er, tech­nol­o­gy is prov­ing it can com­pete and help widen access to mon­ey man­age­ment whether through invest­ing or sav­ing. But as always, doing the research and pick­ing the right ser­vice or tool is crit­i­cal.