Technological change has famously disrupted publishing, music, photography and other industries. Mostly the results have been to the advantage of consumers, widening choice if not always reducing costs.
Similar disruption threatens the financial industry. Already, electronic trading and the depredations of high-frequency traders have changed the face of the securities industry. Now commercial banks face competition from peer-to-peer lenders, although as the latter cannot create money, they are likely to complement banks rather than replace them.
Investment management, though, has so far avoided the tech challenge. The industry has not been forced to shed jobs or lower costs to investors through inroads made by upstart newcomers. If anything, the advent of online options has added costs rather than lowered them and allowed a new set of intermediary firms to profit from people’s savings by charging asset-based fees. At least those fees are starting to come down, as algorithms begin to be employed in portfolio management. Forbes Magazine recently pointed to a couple of US companies it labelled “robo adviser” platforms, which use exchange traded funds to build investment portfolios and rebalance them when they get too far out of line with target allocations.