Could crowdsourcing and the sharing economy disrupt the fund management business?
Trade sharing platforms like Collective2 aim to disintermediate fund management firms and bring the same level of disruption to investment as Uber and Airbnb brought to personal transport and hospitality respectively. As an article on Moneyweb shows, these platforms allow anyone with a brokerage account to mirror the trades on another trader’s account.
That means people with investment expertise can offer their knowledge and skills to other people who need help managing their portfolios. Such traders don’t handle anyone else’s money, so they don’t need a licence or the overheads of trustees and administration. But are retail investors ready to trust such crowdsourced trades without the backing of a major financial institution?
And can this model work for long-term investment rather than for short-term trading? What happens when investors chase different traders looking for the best returns rather than focusing on the long-term picture? The risks of this model are clearly high for investors and only time will tell if it becomes a genuine threat to asset management firms.
But the trend does highlight how new technologies are changing the game for asset managers. With algorithmic trading, exchange traded funds and now, trade sharing, offering new options to investors, fund managers need to go the extra mile to deliver returns and justify their fees.
There is a definite drive towards automated advice and shadow investing where investors can in essence “follow” the investment activities of market participants they aspire to.
This evolution then places greater importance on the need for appropriate technology in this space, so as to allow both the Investment Leaders and his/her Followers to become self sufficient in the areas they would typically expect to receive a service from the "old school" Fund Managers.
Investors are always going to want to track their performance, current and historical. They’re always going to have to meet their reporting obligations from a tax perspective. And they’re always going to change their minds and because of this, technology will always be at the tip of the spear.
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