Digital investing is here, but what is it and how can you take advantage of it for your SIPP and Stocks and Shares ISA?
No, we’re not talking about trading digital cryptocurrencies, we’re talking about using digital platforms to invest sensibly for growth in established markets.
Digital investing technology is changing businesses of all kinds, but it’s having a profound affect in the world of investment. Digital investment platforms have boomed over the years with more services such as SIPP accounts and ISAs becoming accessible. It’s democratising the process and giving consumers access large amounts of information at the click of a button. In doing so it is providing a much wider range of services to consumers including SIPPS and Stocks and Shares ISAs.
Digital investing platforms allow you to open and manage accounts online. There isn’t much new in that, but the game changer is the rise of digital financial advice – otherwise known as robo-advisers.
We tend to think of financial advice being something which relies on qualified experts and costs a great deal of money, but that vision is increasingly becoming a thing of the past. Using complex AI algorithms, digital financial advisers can point customers towards the right investments for their requirements.
A Deloitte survey identified a rich opportunity for digital advice spurred on by what it called an ‘advice gap’ created by the high cost of a conventional financial adviser.
The digital investing report states that “with individuals being increasingly tasked with managing their own pension provision, and in the context of a relatively low state pension, automated advice can play a key role in generating low-cost solutions.”
Self-management of pensions or ISAs can help people get a much more tailored product. For example, if they would rather avoid certain stocks which might be deemed ‘unethical’ they can do so. They often give people greater visibility of how the fund is performing and what they can expect. However, the complex nature of investments will deter many people from actively making the move.
Choice is widening with digital platforms scrambling to meet demand. Towards the end of 2017, for example, Interactive Investor announced that it was partnering with Barnet Waddington to provide digital SIPPs through its platform. The solution was developed by Barnet Waddington especially for Interactive Investor and became available on the platform in December.
There are, of course, obstacles for digital investing which stand in the way. Digital advisers will not be able to match the experience and expertise of a fully trained financial adviser – not yet at any rate. The financial sector will also need to make fundamental changes to the way it operates in order to facilitate choice for the consumer.
Moves are already being made. In January Open Banking went live – a framework for digital banking which might revolutionise the sector. At the moment it demands that the big banks open up data relating to customer accounts, but in the next two years credit cards and other accounts will be added.
The impact of digital investing could be seismic. Customers will be able to take control of their data and share transaction data with other banks and authorised third parties. It will make it easier for customers to shop around for the best deals and will further enhance choice on the market.
The digital revolution, then, is on its way. Despite concerns about cybercrime, customers have displayed a remarkable level of trust in digital financial processes. Data security measures among financial institutions have improved considerably, as have regulations with the arrival of GDPR and others. From ISAs to SIPPs and other products, digital technologies are giving customers more choice than ever.
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Tom Cropper is a financial journalist with work which has appeared in titles such as the Guardian, Euromoney and many others.