Tailor-made investing

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10,” said Bill Gates in 1996. “Don’t let yourself be lulled into inaction.”

The phrase, similar to a sentiment first coined by the futurist Roy Amara, is probably even more true today than when it was written, shortly after the Microsoft founder was crowned the world’s richest person. Exponential trends in technology – from the processor speed of a desktop computer to AI and alternative energy – have only continued to accelerate change, while humans have largely remained poor at imagining the possibilities of the future.

Often changes happen gradually and it’s only when you look back that you realise how far we’ve come. When Hargreaves Lansdown launched its online platform in 1999, would you have predicted that within 12 years you would be able to manage your account on a touchscreen mobile phone? And that by 2020, mobile app log-ins would far outstrip the website? 

OK, no-one should pretend that investment platforms are at or anywhere close to the bleeding edge of technological innovation. But industry insiders expect the rate of advancement to lead to transformational changes in the next 10 to 20 years. 

“We are probably reaching a tipping point with what is possible,” says James Rainbow, head of UK distribution and Latin America and former chief executive of Schroders Personal Wealth. “I’m not sure we can say with any confidence the extent of what changes will happen in the next decade or two, it’s just far greater than we can comprehend.”

Fortunately, some trends can guide us. Adam Dodds, chief executive officer at Freetrade, thinks we’re going to see the “emergence of a seamless global investment network”.   

Currently stock markets around the world are pretty disjointed and retail investors don’t have a simple means to buy and sell shares on stock exchanges throughout Asia, South America or even in Europe. Yet investment platforms have gradually been expanding the stock exchanges they have access to and this should become easier and cheaper as legacy technologies are updated – provided regulatory frameworks are accommodative. 

But the biggest changes are likely to be the level of low-cost personalisation investment platforms provide and the range of products and asset classes you can invest in. 


There’s clearly a demand for investors to have more personalised investment portfolios. In a world where you can compile your own trainer design before you buy, it may not be long before the old ‘off-the-shelf’ fund structure is no longer fit for purpose.

The investment market will also soon have a wave of new customers with very different expectations. “We all know that people don’t save very much until the ages of 45 to 55 and then savings go up rapidly,” explains Rainbow, referring to the period when individuals commonly hit peak earnings, child expenses begin to dip and the prospect of retirement hovers into view. Given that the oldest millennials turn 40 this year, we are just a few years from a substantial increase in the savings of the first truly internet-enabled generation. 

“The generational shift that is occurring is a really important aspect,” says Rainbow. This, he adds, is accompanied by changing expectations around customisation, transparency and provision around sustainable investing options. 

As new technologies make personalisation and access to alternative assets cheaper and easier, it’s easy to see how traditional product structures could gradually be broken down. “A new form of portfolio is coming,” says Alokik Advani, managing partner of Fidelity Strategic Ventures. “One that is hyperpersonalised and truly multi-asset”. 

Some sophisticated investors are already starting to drop traditional index funds in favour of ‘direct indexing’. This is where investors can buy the stocks of an index directly while customising to include sustainability preferences or tax efficiencies, instead of purchasing a mutual fund or ETF.  This is more developed in the US, thanks to a mixture of market idiosyncrasies and beneficial tax rules.  

Direct indexing solutions are not currently on the agenda of Andy Bell, chief executive and co-founder of AJ Bell. But Magnus Burkl, principal at Oliver Wyman, believes it will become a mass retail option in the UK within the next two to five years. He says the most compelling reason for direct indexing is the opportunity for investors to tailor to their own ESG preferences or build in biases toward certain investing styles or sectors. 

This year, Vanguard, JPMorgan, BlackRock and Morgan Stanley have all done deals in the US to bolster their offerings in direct indexing. But the UK’s largest asset manager has taken a different tack. James Crossley, head of sales at L&G Investment Management, says the group is “much more interested in developing diverse index funds that are tilted or factor based”.

And what might the implication of more personalised products be for stockpickers? In short, it could further lessen the appetite for private investor stock selection. Over the past 30 years there has been a gradual shift among private investors from stock ownership to an ever-larger proportion of wealth held in funds. 

Not everyone sees it this way. Rainbow thinks a revival of individual stock ownership is more likely, lifted by the rising tide of investing writ large. On this score, there is undoubtedly a growing interest in investing among private investors for a multitude of reasons: those who work in the private sector can no longer rely on defined-benefit pensions, investing has become cheaper and more accessible and environmental, social and governance (ESG) considerations have climbed up the agenda. And let’s not forget, booming markets since the financial crisis have made lots of people lots of money.

Rainbow also has a suggestion: the next evolution of stockpicking could see fund managers sell their intellectual property. This means stockpickers could see exactly what famed fund managers own in their funds, and pick and choose any companies to which they already have exposure or did not want to own. This extra screening process would, for example, allow an investor to perfectly mirror Terry Smith’s portfolio, with the exception of tobacco giant Philip Morris. 

“You can’t get real personalisation through a fund structure,” says Rainbow. “I have not seen the tech that currently exists to register a stock basket and administer and rebalance at an individual level. But on a 10-year view, the industry must move in that direction as investors will expect it”. 

In the nearer term, platforms are trying to build solutions, rather than simply offer up products for people to pick between. Bell says he’s focused on helping simplify the investment experience for the “nervous newcomer”, and has been challenging the regulator to tweak its definition of “guidance” to give platforms more freedom to draw customers’ attention to attractive investment options.

But what do investors really want? Although this varies, for many the answer will look like: 

1) as much money as possible for a comfortable retirement; 

2) diversified exposure to a range of assets; and

3) a portfolio that aligns with their values or individual preferences. 

How this will be achieved is, naturally, a matter of debate. Dean Frankle, partner at Boston Consulting Group, expects more platforms to follow the approach of Ethic, an investing app backed by the Duke and Duchess of Sussex and which builds a portfolio based on users’ values. For someone keen to focus on companies that embrace gender and racial diversity and that avoid high carbon emissions, for example, the app will build a portfolio factoring in those preferences.  

Hargreaves Lansdown chief digital officer Chris Worle points out that the investment platform space remains quite geared towards the accumulation phase. In the future, he expects much more sophisticated retirement and pension planning tools through the use of artificial intelligence and machine learning to help investors understand their financial position and the possible implications of decisions.

In terms of the technologies that will shape the investor experience, Worle thinks virtual reality and augmented reality are currently “a bit gimmicky” and is sceptical as to how they might help solve financial planning problems. But he views voice activation technology such as Siri and Alexa as increasingly sophisticated and likely to be integrated into platforms in the coming years.  

Above interactive features, the key to enabling brokers to provide a comprehensive and personalised investment experience will be open finance. An extension of open banking, joined-up data-sharing protocols would give investment managers access to information from a range of financial providers (such as a bank, mortgage lender, or insurance provider) to get a holistic overview of an investor’s overall cash flow position. Investors could then be nudged to take action or be alerted to other options. 

However, this isn’t straightforward. Open banking has been slow to implement and has met significant resistance – partly because many of the banks were forced into it rather than seeing it as an opportunity. Success would also be dependent on individuals agreeing to share lots of data. 

The super app

Mobile phones will also play an increasingly important role in managing our finances. The ubiquity of mobile trading has been one of the most striking developments in recent years, even to the traditional investment platforms. Hargreaves Lansdown said it had 2.5 times as many mobile app log-ins as website log-ins in its June-end financial year. Trading 212, meanwhile, was the most downloaded app in the UK in January.  

Some industry figures and analysts think the natural extension of the mobile trading trend will be the emergence of the so-called ‘super app’ – a one-stop shop to manage all your finances. This has happened in China with Ant Financial’s AliPay, in which users can do almost anything finance-related, from a range of investment services to paying bills to banking or choosing an insurance policy. 

But Sean Hagerty, European managing director at Vanguard, doubts whether super app hopefuls will actually pull it off. In China and other emerging markets, many people skipped desktops and laptops and transitioned straight to the mobile phone for their banking services. This created a fertile ground for monopolistic multi-functional apps such as Alipay and Tencent’s WeChat.  

In the West, customers prefer specialist services and are perfectly happy with multiple apps, Hagerty says. Of the super apps in the west, he says “people have been talking about it for the past 25 years and it hasn’t happened. At first it was AOL, then it was Google and Amazon”. 

The possibility of Facebook, Google, Amazon or Apple entering the investment services business has loomed as a risk to brokerage platforms for years. But so far they’ve broadly been happy to stick to payments. “I think they don’t like the regulation,” Bell says. “It’s a great barrier to entry.” 

That said, earlier this year Amazon Pay, a wholly owned subsidiary of Amazon, partnered with Indian mutual fund provider and advisory services start-up Kuvera to offer wealth management services to its 50m customers. This move came soon after Google Pay offered fixed deposits to its Indian customers.

“You can see big tech wanting to offer investment products but they may not do it full-scale,” says Advani. The retail trading euphoria that accompanied the pandemic has created many new investors and spurred fresh enthusiasm for all fintechs now wanting to offer brokerage services. In turn, this is building fierce competition among investment platforms and those that offer the best customer experience are likely to be the ones that win out, if they have sufficient financial strength to survive the next market downturn.  

Like Hagerty, Advani doubts we will end up banking and investing on the same platform. But open finance, when it happens, should make services interoperable so you can see all of your financial information in one place. Advani thinks an “aggressive view” might be five years for this to happen.

Tokenisation for true multi-asset 

To many, the old balance between equities and bonds for a diversified portfolio is a dated concept. Floods of money going into private equity, real estate investment trusts, infrastructure trusts and crypto currencies – as well as alternative trading apps – shows that private investors are looking to diversify. 

The trouble has long been that alternative assets have been difficult and expensive for private investors to own. While some investment trusts provide a handy solution to get around the problem, many trade on high premiums to net asset value and are only available as collective investment schemes – and there aren’t very many to pick between. 

Richard Wilson, chief executive of interactive investor, predicts that by 2030 “there will be several super tanker investment trusts investing in alternative assets” from space exploration to deep technologies and other assets that might help solve the climate crisis.

But some companies are currently building platforms using blockchain technology that can ‘tokenise’ illiquid or alternative assets. At an institutional level, significant progress has been made. Nasdaq Private Market in the US, which facilitates capital-raising for private companies and has grown rapidly since it formed in 2013, uses blockchain technology to create and transfer shares of privately held companies.

In Europe, Société Générale has set up its FORGE network to help institutions issue and trade “digital-native financial products”. Earlier this year it was used to help the European Investment Bank (EIB) issue its first ever digital bond on a public blockchain. 

Thomas Olsen, partner at consultancy Bain and Co, says large alternative asset managers are looking to diversify their funding sources away from pension schemes and endowments and towards the retail market. In a paper published earlier this year, Emmanuelle Pecenicic of BNP Paribas said tokenisation could “democratise” alternative assets by facilitating fractional ownership. 

Once created, tokens would be traded by private investors on secondary markets. Of course, these secondary markets could still be pretty illiquid. But Olsen says companies are working to provide “secondary mechanisms” via a fund of funds to provide liquidity for the tokens.

It could be a while until private investors can buy regulated tokenised alternative assets, though. Olsen thinks it will be “messy and gradual”. Regulations and laws have to adapt, which will be specific for individual sectors to make them investible, from real estate to infrastructure to agriculture. 

The list of possible sectors that tokenisation could give access to is endless. Advani says this will transform portfolios to be “truly multi asset”, including assets such as art and wine if people want. “Every version of tokenised asset will make multi-asset,” he argues.

Those who have been quick to dismiss non-fungible tokens (NFTs) may want to reconsider. There are, of course, plenty of examples of bubbles – but the notion of digital ownership of assets is not all that far from what institutions are trying to do by democratising alternative assets. 

Some in Silicon Valley might tell you that the future of the internet – characterised as web 3.0 – is a decentralised utopia built on ‘smart contracts’ hosted on a blockchain, which self-execute according to pre-determined conditions. Decentralised finance – or DeFi – is perhaps currently the most advanced iteration, where financial applications are run not by a company, but autonomously, by groups of users. Proponents argue DeFi can replicate existing financial services in a more open, interoperable and transparent way, while facilitating traditional asset management tasks.

However, there are several barriers to DeFi achieving mass adoption. To many, the rampant speculative trading of DeFi tokens, questions about energy intensity and limited regulatory oversight do not commend it to the near-term future of personal finance. There is also a concern currently that decentralised financial networks have become a hotbed for financial crime. The chances of a new financial system taking hold that supersedes regulation in the next 10 years seem extremely slim, and there is currently a lot of hype surrounding imminent technological possibilities. Perhaps it’s got something to do with where we are in the economic cycle. But the tokenisation of assets looks as though it will gradually overhaul the entire financial system – starting with alternative assets. 

What should investors do in the meantime? It seems the basic principles of investing won’t change. A low-cost diversified portfolio should win out in the long run. But staying open-minded as to how this is achieved and embracing emerging technology is always smart, too. It may be that mainstream platforms gradually start to include tokenised assets when the technology and regulation is ready.