Next-generation investors — How retail clients will invest in 2020
Engaging, at your fingertips
We have recently experienced a tipping point in mobile technology. Smartphones are becoming the majority in cities and most people nowadays carry the quivalent of a hand-held computer that can make phone calls. If we can reach this fast-growing smartphone population, then we gain access to the lion’s share of middle-class/wealthy individuals. In designing the next-generation interface for the next generation of global retail investors, mobile devices will be the focus. In the next 10 years, there is a high probability that more transactions will take place via mobile devices than any other media.
There are two schools of thought. While one school believes in the optimal minimalist approach – keeping fingertip movement to a minimum – the other promulgates the content-rich Wikipedia approach. I am skewed towards the minimalist school. One has to consider the regulatory environment today and in 10 years’ time. The executing application should be straightforward for the self-directed investors to use, which helps minimise complaints and regulatory work. The National Geographic-type research and education could go onto a separate area or sister application
Global markets is the minimum offering
Technology in exchange connectivity has commoditised the global product offerings. Every major online broker today offers global opportunities with a single account. Surely local products will dominate in volume, but accessibility to foreign exchange, commodities, bonds, overseas underlyings, a global exchange-traded fund universe, and so on, will determine whether you are the primary account or merely sitting on the bench.
Looking at the online broking industry in Germany, the ‘trade-for-free’ business model sponsored by issuers is the norm for structured products. The trade volume in the over-the-counter markets is as significant as it is for those on listed exchanges.
Profit margin is being squeezed at every level of the chain in the cycle. Those who implement vertical integration of product manufacturers and business-to-consumer distribution could emerge as the big winners.
Client-focused innovation
In most cases, it is not about what issuers want to sell but what clients want to buy. The next-generation competitive edge may be derived from client experience rather than from product features. Most drivers do not experience the extra 20 horsepower that takes 0.2 seconds off the 0–100 km/h statistic. In fact, the mass automobile industry has focused its innovation efforts on the drivers’/passengers’ experience rather than the engine specifications. We may see a similar trend emerging in the area of structured products. The innovation dynamics may shift from quantitative modelling in payoffs to the investment journey that helps clients to achieve performance – mastering an everyday car instead of struggling in a V-12.
The use of mobile devices, long-tail offerings and client-focused innovation will be a landscape change in structured products. Currently, we are only at the stage of doing warm-up laps.
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