The investor of the future

Jon Willis of Calastone explores the changing behaviour of investors and challenges the industry to radically re-examine how it seeks to serve

In the midst of ski-season, for the 2015 International Transfer Agency Summit (ITAS) we’re heading off-piste. Every year in Luxembourg the funds industry assembles for this important conference to discuss a broad spectrum of essential topics: regulation, distribution, oversight, value chain alignment, platform developments, and product diversification. Without question, these are all highly relevant and important, but I worry that, all the while, kindling wood is being laid under the industry’s feet and investor behaviour is radically changing. As an industry, will we be fit to serve investors of the future regardless of what generation they belong to?

Today’s consumer is influenced heavily by smart technology and the power of marketing suggestion. Outside of financial services, many service industries and retailers have woken up to the sales, growth and product development potential that a well-designed platform has to offer. Recognising that a platform in itself isn’t sufficient, they have invested heavily in understanding, analysing and exploring data that customer behaviour generates in order to drive their service and sales strategies. Ever alert to buying patterns and trends, they tailor offers for their customers, offer recommendations based upon what similar consumers did or liked next, and work hard to create customer ‘stickiness’ by recognising and rewarding loyalty.

Consumer behaviour appears to respond well. Not content with recommendations alone, we are keen to see how others have rated the product or service in question. We want to read reviews and any supporting snippets of content, and ask others for their opinion to enable us make decisions quickly.

Against the backdrop of fast, light and easy-to-use smart mobile technology, empowered by real-time information, it is extraordinary to consider that today it is easier for the UK population to obtain debt, than it is to invest in a savings product. Using smart technology, loans are approved within seconds and providers communicate with their debtors to make further offers and suggestions. We live in a world sorely under-saved with one click debt.

Generation next?

The pace of functionality, data processing capability and capacity change is ever-accelerating. What can we anticipate from (and for) the next generation of ‘Millennials’ as they make decisions about how to use their disposable income?

After all, they are potential and, in some cases, existing investors. Based on their buying power alone, they are already influencing the relative success of investment products, today and tomorrow. They are engaged consumers, and therefore engaged investors.

The Miggins metamorphosis

Forget Mrs Miggins, welcome Ms Miggins. Used to a cashless way of life, on her daily commute home to Tunbridge Wells, she’ll be checking her bank account, making instant payments and moving her cash around. She may be adjusting the temperature of her home for when she walks through her front door. Throughout the day, she will have been checking and tracking what her kids, or pets, have been up to and running a remote, digital diagnostic check on her car before deciding where and when to book it in for its service (and if she can’t do that today, I’d happily predict it won’t be long coming).

From a single stream, using an integrated stream of apps, data and social information, she will make short-, medium- and long-term financial decisions, all at a single swipe.

Brand turned inside out

Investors used to care about brand. It used to matter to which firm they entrusted their hard earned cash, and in response, ‘star’ fund managers were paraded and billboarded. For Ms Miggins, peer review and performance will drive her investment decision-making much more than brand. No more the model where the brand attracts the investor, rather the investor attracts the brand.

It’s not just alibabble

Consider the potential. Only two years ago, the Chinese fund management firm, Tianhong Asset Management Co, managed a relatively modest $1.9 billion in assets. In June 2013, it launched a money market fund with the retail giant Alibaba Group Holding. Benefiting from easy navigation from the ecommerce retailer’s site, investors could invest in the Yu’e Bao fund. Within nine months, the fund had attracted more than $81 billion from tens of millions of investors.

Time for fresh thinking

It wasn’t so long ago that the industry questioned the need to automate transaction processing. That’s when we came along, and since then, at every stage of our innovation and evolution we have worked closely with administrators, distributors, managers and custodians, thinking through what they and the industry need. We determine our product and innovation roadmap with a keen focus on helping the industry reduce cost and risk, meet its regulatory requirements, and above all else, better serve the end investor.

During the first day at ITAS this year, we will be hosting a session (Breakout Group B at 14.20) ‘What Will It Take To Really Drive Our Business Forward’. Within what we predict to be a rigorous and informative session held under Chatham House Rules, will lie the following central question: if the industry remains on its current trajectory of change, are we going to get to where we need to be, by doing what we have always done before?

These are changing times, and fascinating and exciting because of it. And there are two things we can be sure of these days: time waits for no one, and neither does technology.
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