Alan Grujic is the founder and CEO of All of Us Financial, discusses what the year ahead will look like for the investment industry.
2019 proved a pivotal year across the investment industry with everything from market shake ups such as Schwab’s proposed purchase of TD Ameritrade, to the race to deliver no-fees trading and a highly unpredictable IPO market.
What impact will this volatility have going forward? Will an election year have sway over investors? After working for decades in institutional investment, I still believe the long game holds the most value. That said, it’s worth keeping a close eye on current trends. Below are my predictions for what investors can expect to see over the next 12 months.
Developers will play a pivotal role
Financial interfaces must change, and fast. As more upstarts enter the market poised to challenge incumbents, user experience and user interface will be a critical differentiator.
Consumers are looking for a balance of technical ease delivered with a human experience; they want things to work seamlessly but they also want to have an empowering relationship with their financial company, whether it’s a bank or a brokerage. The top requirements of consumers from financial institutions - namely trust and security - will be challenged in 2020 amid ongoing data breaches or hacked technology. Banks and financial services companies who deliver transparent, immediate responsiveness in the wake of crisis, as well as those who can provide digital experiences that delight customers, are the ones who are going to come out on top in 2020.
No fees trading will continue its ripple effect through the industry
In the investment world, a bomb went off in October as some of the largest brokerages in the business announced new, no-fees trading privileges for investors. Finally bowing to pressure from relative newcomer Robinhood, these companies who have been in business for decades recognized they were outmatched by the disruptor.
This sea change won’t settle down any time soon, however. Digital upstarts, emboldened by Robinhood’s success but able to learn from its missteps, will further challenge the investment industry. Investors, while enjoying a new no-fees trading model, will be intrigued by even more transparency, as fintechs prove that investors can and should have more insight into how their money is used and how much is being made on their money.
Financial services will tap into the benefits of social
As general social media platforms face mounting pressures amidst constant misuse of data and the chaos that often comes during an election year, 2020 will prove an interesting opportunity for targeted “signal-focused” channels to lure users in with highly specific content and opportunities to engage with like-minded peers.
Fintech has yet to leverage the full benefits of social technology, owing to a long held assumption that finances and money are topics too sensitive to share. Yet younger generations expect much more of an interactive, empowering experience from the companies they engage with, and this is often built on compelling social experiences.
Technology that incorporates new alternative data sets and delivers scalability has made it easier to connect through anonymized data, and has given users more transparent control over how and what they share online. The effect has been to encourage new opportunities to connect and learn from peers as well as groups in social settings.
Social will be a powerful tool introduced to the investment market, particularly in 2020, as investors come together to share tips/tricks, enjoy league comparisons similar to fantasy football (but for real), and take advantage of a newly available, collective investment power.
The payment-for-order-flow practice may face stricter regulations
Investopedia helps explain payment-for-order-flow (PFOF), which is the compensation and benefit a brokerage firm receives for directing orders to different parties for trade execution. Typically a brokerage firm receives a very small payment per share, for acting essentially as a middleman in the trading process.
In 2020, we may very well see regulators requiring changes to the prevalent practice of PFOF. Currently, regulators are actively engaged in analyzing this area and have been soliciting opinions from industry participants as well as experts in financial market operations, market structure and consumer advocacy. This demonstrates a clear concern from regulators, as to whether the current model is in the best interest of investors. There are strong arguments both in favor of and against the current PFOF business practices, but I would not be surprised if 2020 brought with it buzz of regulatory changes.
Artificial Intelligence still a hot trend for VC investment
Companies focused on AI technologies and solutions will continue to be an important investment target for VCs. In 2020 we’ll see regular investors start to get behind a majority of the IPO companies that have struggled in 2019, especially those with platform-based business models. These companies will start to demonstrate greater financial discipline now that they are public, and gradually they will win the confidence of investors while continuing to rapidly grow. The pendulum tends to swing back and forth, time to swing back. Despite all the hype in 2019, however, WeWork will most likely not IPO in 2020 after all.
Despite all the hype, the outcome of the election won’t matter to the market
No question the US presidential election will take up a lot of mindshare in 2020, but the reality is that it won’t really matter to the market. 2021 may be a different story, but following the outcome of the elections the crystal ball will be too murky to read, and there will be enough time to figure it out before the market fully digests the implications and begins to trend up or down. I predict the reaction will not be quick or violent initially, but the medium-term trend will be defined by who wins, and what policies they actually commit to implementing.
Finally, for fun, here’s a quick take on three more trends you might see coming down the pipe:
In 2020 everyone will be talking about a global recession. But surprise! We’ll see the world economy strongly expand in 2021 and everyone will grow more bullish.
The US deficit gets a lot of airtime, but holy sh*t, treasury yields keep slowly rallying. They may go lower, but in a zig-zag pattern where the trend is not blatantly obvious. Eventually we’ll see them break below 1%, although perhaps not until 2022. Surprise
People will realize that Warren Buffet has permanently lost his touch. It’s not a transient thing this time, it’s gone. What remains to be seen is who will take his place.