Ten years ago this week, Apple began a revolution in the mobile phone market when it announced the launch of its first iPhone. At the time, Nokia was the pre-eminent maker of mobile phones, followed by Motorola and Samsung.
Of these names, only Samsung remains in the top ranks. In one fell swoop, Apple created a product that completely changed the mobile phone market by creating the first smartphone worthy of the name.
Around 40% of U.S. smartphone users now have an iPhone and Apple has expanded the iPhone formula to the iPad and used it to further develop the iTunes and App Store software, all of which have helped power Apple to one of the world’s most valuable companies. The rise of the iPhone, and decline of many of its competitors, is a cursory lesson in the power of new technology to disrupt industries.
I remember being at a presentation given by George Blankenship, formerly of Apple, 18 months ago where he talked about the phenomenal growth of the company and its brand. There was one slide that really made the fund management audience sit up. It had a hypothetical newspaper headline announcing Apple’s intention to become an asset manager.
All of us need to evolve to survive.
It remains to be seen whether Apple will enter the asset management industry. Personally I doubt it is their top priority. But our industry faces disruption nonetheless. Incumbents, whether they are fund managers or intermediaries, cannot be complacent. All of us need to evolve to survive.
One of the most disruptive forces is the rise of computer-led investing. Passive strategies have already made serious inroads into the U.S. market, and I have no doubt that the industry will experience the same in Europe and the UK.
It may come as a surprise to some, but I can see a place for both human and computer-led investing. Truly actively-managed portfolios have the potential to deliver significant outperformance over the long term. The downside is there are periods when there is underperformance.
Passive and quantitative approaches to investing can offer exposure to market returns at a lower cost. These strategies can be beneficial to multi-asset or diversified growth portfolios, for instance, as they help to keep overall costs down. In return, they need to follow the benchmark or strategy that their managers claim to.
Another potential disruptor is robo-advice. It is argued that individuals will use these platforms as their primary source for financial advice. While there is potential for this to happen, the bigger opportunity is for advisors to harness these technological advancements and incorporate them into the services that they provide to clients. Technology can provide tools to effectively augment what advisors are able to do.
Passive and robo-advice are just two examples of the challenges that the asset management industry faces. Ultimately, more passive and quantitative strategies, and new technology in the adviser market, offer consumers more choice and that is a good thing. Defined contribution pensions mean individuals will take more responsibility for how and where their pensions are invested.
It is worth remembering that disruption does not have to mean decline. Incumbents can also capitalize on technology and new thinking to disrupt their industry but only if they grasp the opportunity that it presents.
*Companies mentioned for illustrative purposes only and should not be taken as a recommendation to buy or sell any security. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.
This article originally appeared in Investment Week on January 5, 2017.