A change in wealth allocation and investor attitudes is set to redefine the asset management industry according to the latest paper published by the Association of the Luxembourg Fund Industry (ALFI) and Deloitte Luxembourg, “How can FinTech facilitate fund distribution?”.
The paper found that Millennials and Generation X will account for half of assets under management by 2030 and that their attitudes towards saving and investment will result in asset managers adjusting their future offerings to adapt to and facilitate a new way of investing.
ALFI and Deloitte have identified in their latest report new approaches towards investment and the implications these will have on the asset management industry. New thought patterns, standards and expectations which are substantially different from previous generations will lead to a boom in robo-advice, a change in tailoring portfolios, and a shift in marketing strategies.
Denise Voss, Chairman of ALFI, says: “These behaviours will be a driver for change and the investment management industry has a unique chance to respond to these positive opportunities. Asset managers not only have to consider their offerings in the future, but we are also currently seeing an increasing number of Baby Boomers being influenced by the younger generation’s fresh perspectives. This will result in today’s asset managers having to clearly understand and address the needs of each generation individually.”
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In addition, the paper found that the new set of investors is seeking to further align their investment portfolios with their social and economic values. Issues such as global warming sit at the forefront of what is important to younger investors, and the report forecasts a sharp movement away from traditional investment in oil and gas to clean-energy industries such as solar and wind. The research also found that Millennials are often willing to accept lower returns in exchange for greater social and environmental impact compared to previous generations.
The DIY attitude of the Millennial investor will also see an important leap in assets under management in the robo-advice space. Over 50 per cent of investors interviewed as part of the research paper cited a lack of trust in advisers and belief in better performance from self-directed investment as the reasons for why they are turning away from traditional advisers and towards robo-advisers. Total assets under management that are managed by robots currently represent less than 0.1 per cent of the €29 trillion investable assets in the US. However, the report predicts this to grow to 10 – 14% by 2025.
Simon Ramos, Partner of Deloitte Luxembourg, says: “The emergence of algorithmic-driven, so-called “robo-advice” and enhanced distribution platforms offer great opportunities for traditional asset managers to re-think their business models. The robo-advisor phenomenon will be a game changer that could result in an overall reduction of fees and create a new digital experience for the end investor. We will continue to see robo-advisers entering the fund distribution ecosystem and Luxembourg’s strongly connected industry players are well-positioned to ensure that Luxembourg remains at the forefront for innovation. Luxembourg’s fund industry must play a leading role in this shift in order to address the future of investment management.”