CONTRIBUTORS
Sandy Kaul
Head of Innovation
Franklin Templeton
Robert Crossley
Head of Industry Advisory Services
Franklin Templeton
Alegria Apikelis
Senior Analyst
Franklin Templeton
Janice Deringer
Senior Analyst
Franklin Templeton
Samuel Huddart
Senior Analyst
Franklin Templeton
This is the 10th article1in the Future of Investing series, drawing insights from our annual industry-wide survey, The Future of Investing.2 The Overview summarizing the top 10 key findings can be found here along with a series of articles, each exploring a key finding in more depth.
Preview
New direct-from-consumer model embeds advisory upstream in the capital flow to direct its deployment
The lower-touch advisory model of the future is likely to mimic the open banking approach, where data, activities and products are delivered and enabled via application programming interfaces (APIs). These APIs will be exported from today’s proprietary platforms and distributed so that advisory can be embedded at the point where an individual receives capital, rather than managing the capital left over for investment after other spending demands have been met.
This would represent a fundamental shift of emphasis from episodic capital raising to placing continuous capital collection occurring wherever, and potentially whenever, the client receives funds. This would reposition advisory, and rather than measuring success by a banker’s or advisor’s ability to deploy lumps of capital into a commission or fee-generating product, the ability to advise on and influence the direction incoming capital moves the goal to shift toward optimizing the client’s wealth and current living.
Capital would be coming into the advisor’s hands frequently, often daily, though in small and irregular amounts. The primary goal will be to understand the client’s needs and determine the best ways to allocate and utilize incoming funds. The value lies in offering advice on how to optimize the allocation of the investor’s money, across its many uses, e.g., spending, savings, philanthropy and investing. In this view, investing is just one of many potential uses for those funds.
Many wealth advisors are already targeting the workplace and looking to offer their services to those in high-potential professions much earlier in their careers before their net worth reaches traditional minimums. The potential to expand such advice to incorporate cash allocation and optimization would be especially well received by those still looking to build wealth and could help them meet their goals more quickly.
Yet, in today’s modern society, the workplace is just one channel where individuals receive funds. A growing set of apps and “super-apps” are embedding wallets and facilitating the distribution of capital from payments, sales, subscriptions, promotions, donations, contests and rewards all on a single platform. Some of this is in the form of fiat currency, but some could be other forms of money—such as assets like loyalty points that can be directly exchanged for other assets—without the transfer being intermediated by fiat currency.
Embedding advisory services at the point where investors collect money and the need for advice comes into being places the wealth manager in a position to influence the direction of the flow of capital upstream rather than simply competing to manage the capital apportioned to investment well downstream.
For more information or to request a presentation on the 2024/25 Future of Investing findings, please contact your Franklin Templeton representative or reach us directly at [email protected]
Endnotes
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Discussions in this piece are theoretical in nature and may not come to pass.
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On an annual basis, Franklin Templeton’s Industry Advisory Services team conducts off-the-record, unscripted interviews of leaders across the financial services industry. This year, we were fortunate enough to hear from 85 leading thinkers controlling over US$50.1 trillion of assets under management across the financial services industry about their views on the future of investing between March and September of 2024. Input came from a broad cross-section of the industry—asset owners, private banks, wealth managers, consultants, investment managers, crypto firms, academics, industry leaders and fintech firms. Conversations took place formally as part of free-ranging, qualitative, off-the-record, survey interviews, and informally during one-on-one sessions where the implications and plans for each organization are discussed and explored. Each of these inputs added to an emerging picture of an industry that is changing rapidly and across multiple dimensions. Interviews were conducted globally with about two-thirds of discussions held with leaders of firms based in the United States, and the other third spread between Europe and Asia.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Companies in the technology sector have historically been volatile due to the rapid pace of product change and development within the sector. Artificial Intelligence is subject to various risks, including, potentially rapid product obsolescence, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations.
Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.
Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.