Technological advances can engage more people and bring the cost of investments down for the end client, the Treasury said, urging firms to sit up and take note of the “notable” rise of wealthtech and automated advice products.
According to the Investment Management Strategy II paper published by the Treasury this week, around 16 million people could be targeted for financial advice for the first time if robo-advice became a core tenet of wealth management offerings.
“They [robo-advisers] typically offer low minimum investment amounts, providing everyday savers access to a broader range of professionally managed investment portfolio services, online,” the paper said. “By providing advisory services directly to consumers, with little human advisor assistance, robo-advice helps asset management firms to bring down investment management costs.”
Around 85% of millennials were comfortable with the concept of robo-advisers, according to a 2017 Legg Mason investor survey, with a further 80% trusting automated investment recommendations.
Developments in wealthtech can also bring down the end cost of investing as it strips away the need for a bulk of intermediary help, the paper added.
“Disintermediation is the process of streamlining these intermediaries, making the system more efficient and transparent,” it said.
Trade body the Investment Association (IA) will work towards creating the UK’s first blockchain-enabled fund to streamline back-office work as part of fintech push.
The digital-only fund would reduce the number of intermediaries used and result in lower end-costs, the paper said.
The rise of fintech has, however, thrown up “unique” cyber-security challenges that must be tackled, the Treasury said. The IA has also been tasked with creating the world’s first Asset Management Cyber Security strategy to ensure data is protected throughout the industry.
It is “more important than ever to understand and assess cyber security risks and establish robust processes that ensure that asset managers are kept continually informed of the emerging and emerging cyber risks,” the paper said.
The Investment Management Strategy II builds on a first document published in 2013.
The second version of the paper, published on 6 December, lists its aims as improving the pipeline of talent into the industry by establishing Asset Management Centres of Excellence at UK universities and working with overseas partners to secure business and investment.
It also aims to promote the UK’s tax regime for the funds industry, and supporting asset managers that want to develop innovative strategies in areas such as sustainable or social impact investing.
Chris Cummings, chief executive of the IA, said the group would work with the recently-established Asset Management Taskforce to improve the dialogue between the government, industry and regulators.
He said: “The forward-looking agenda brings a welcome focus on the critical success factors of tomorrow, including harnessing the fintech revolution, encouraging sustainable investment and ensuring a diverse and world-leading workforce. Domestic excellence will help to boost the industry’s export and trade contribution as the UK looks to a new place in the world.
“This strategy means our industry will continue to deliver the best possible outcomes for savers and for the UK economy in the years to come.”