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Making investment equitable: democratizing financial insight in the digital era

Not long ago, investing in the equity market and similar assets was a privilege only the elite few enjoyed. But over the last 30 years, several major events across the globe have democratized access to capital markets and opened up the world of investment for everyone – bringing new opportunities, as well as challenges, for investors and financial services providers alike. 


With an ever-increasing amount of investment options, how do you decide where to invest? And how do you make sure those investments are tracking towards your wealth goals? These questions are becoming increasingly relevant for an expanding group of Australians looking to grow their money during historically low savings rates, exponential property prices – and now the spectre of soaring inflation.


Financial services companies have an opportunity to add value by helping them find the answers.



On the road to democratization


Neoliberal policies, privatization of state-owned assets and the rise of the internet opened up the share market to mum and dad investors in the 1990s. According to the RBA, Australians holding shares rose from 10% to 25% of the population in six years, with participation rising to 40% by the end of the decade.

Today, new technologies have enabled easier mobile trading – and paved the way for the explosion of digital brokerage platforms like Robinhood, Stake and eToro. Investors also have more assets to choose from than ever before – from equities and ETFs to real estate, crypto, NFTs and beyond.


Ease of access, a myriad of options and historically low savings rates have created the perfect storm for even more individuals to embark on their investment journey in a bid to find higher returns.



Are investors reaping the benefits?


According to the Australian Securities Index’s (ASX) 2020 Australian Investor Study, 46% of Australians now hold investments other than their home and super, with a quarter (23%) still fresh to the market – making their first investments less than two years ago. In 2020, 900,000 individuals were planning to begin investing within 12 months. With half of Gen Z (18–24-year-olds) also keen on investing, it’s likely that 50% of our population will be investors before too long. 


But are they getting the most out of their investments?


Long-term success requires generating new investment ideas, building a portfolio, staying invested over the long term irrespective of ups and downs in the markets, close monitoring and managing risk – especially in a volatile market like today’s. Investors need to be familiar with the basics of fundamental and technical analysis, know where to find the right information at the right time, and critically, have enough time to track and manage their portfolios. 


For most investors today, this is not realistic.



Why lack of understanding is holding investors back


While technology has made trading easier for the mass market, it hasn’t done much to improve their understanding. 


More than half of retail investors don’t consider themselves knowledgeable about the share market. Over a third (35%) are willing to seek advice, however, because they don’t feel comfortable making decisions on their own – or they want to get better returns. But 53% don’t feel they can access advice as they don’t know how to find a suitable advisor or think they don’t have enough capital to justify the cost.


Many simply don’t want help because they don’t trust advisors, believe they can make better decisions on their own or had disappointing experiences in the past. And while there is a wealth of information available at investors’ fingertips, the sheer volume can overwhelm the most eager students.


Cognitive biases can also impact an investor’s decisions – often leading to poor outcomes. From confirmation bias – relying only on information that confirms the decision you want to make – to the bandwagon effect (the name says it all), investors need to recognize and overcome their innate biases to make smarter investment decisions.


And with increasingly busy schedules, few investors have the time to give their investment portfolios the close attention they deserve - or educate themselves.



Keeping investors financially fit


Investment advice is similar to the fitness industry. Only a small percentage of the population has a personal trainer, many have a gym pass, and everyone wants to be fit and healthy. 


While the fitness industry has been successful at developing personalized content at scale to help more people stay fit, in the financial sector, this is still unmarked territory. Yet investors and fitness enthusiasts have similar appetites for content.


While savvy investors may only need a reliable and easy to use platform to trade on, others rely on advisors every step of the way. But there is a group of investors emerging who are interested in guidance, yet don’t want to go down the formal advice route – a group that is craving relevant, timely content that’s easy to find.

So called ‘finfluencers’ on social media have already taken note of this gap, which is seeing many, especially in the younger demographics, turning to TikTok and Instagram to search for content. Platforms that offer social investing have also mushroomed - where investors simply copy portfolios from other successful investors. As the Australian Securities and Investments Commission (ASIC) doubles down on unlicensed advisers on social media, financial services now have an untapped opportunity to add value by solving their customers’ biggest challenges – a lack of knowledge and time.



How companies can provide personalized, quality advice at scale


Although easier said than done, combining digital trading with elements of personalized financial advice could lead to more positive outcomes for investors.


Digital tools can help customers make smarter investment and trading decisions, and monitor their investments against their goals. For example, quarterly or half-yearly alerts can assist investors to track and rebalance their portfolio. Helping customers reduce their portfolio churn also helps firms build a reputation for growing client wealth – rather than generating their own income.


A major portion of investment returns is achieved through proper asset allocation. However, most people’s view of their overall portfolio is fragmented across multiple asset classes and investment platforms,  so firms could also develop an aggregation service for all assets. Building real-time insights and reporting tools for portfolios can also help investors better balance their asset allocation – and help them assess risks and future cash flows. 


These are just some of the ways we believe the industry can support its customers. The world of investments is more accessible than ever, which means the demand for relevant, personalized advice will continue to grow. Financial services can play a critical role in helping people make smarter decisions – and build their wealth safely and confidently.

Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.

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