Friday, 6 December 2019 15:56
More and more individuals are taking advantage of the democratization of information, education and market access to achieve their own financial goals and impact and influence the society they live in, Kim Fournais writes in an essay for finews.first.
I co-founded Saxo Bank in 1992 and we were one of the first companies to focus on leveraging the internet to deliver better investment solutions. When we started on this journey, our principal belief was that the many, rather than the few, should be able to access the world’s financial markets in an optimal way.
New technologies and the availability of information and knowledge have helped create a more level playing field, which means the investment opportunities and tools previously only available to large financial institutions on Wall Street are now available to the people on Main Street – at ever-lower prices. My belief remains that everyone should have the freedom to build a comfortable foundation of savings and maximize those savings for retirement or to support other life goals.
For those new to the world of online trading and investing, one of its primary advantages is the ability to access a wide variety of asset classes – equities, bonds, commodities, exchange-traded funds, mutual funds, futures, options, contracts for difference and other products – from a single place and at cheaper rates than those offered by typical financial intermediaries. The ability to efficiently diversify across geographies and asset classes is important because your investment universe plays a key role in determining your overall investment returns.
«Many people work four unnecessary years on behalf of their investment providers»
In addition to nearly round-the-clock access to global capital markets, online trading has brought about reduced transaction costs. For example, in the 1980s, the cost of making a trade on the NYSE reached hundreds or even thousands of US dollars, today it can be done for less than $10. The impact of investment costs and fees can be difficult to grasp but the effects on returns can be profound.
The Danish consumer council has calculated that by shifting your savings and pensions from traditional bank-backed investment solutions to lower-cost investment alternatives, individuals can save the equivalent of four years of retirement over a lifetime. In other words, many people work four unnecessary years on behalf of their investment providers. Given that statistic, it is no wonder that more and more people are eschewing traditional forms of investing and turning to online alternatives to build wealth sustainably over the long term and improve their retirement nests.
While online trading does have many potential advantages, it requires careful decision-making to avoid common drawbacks. Clients need to be well-informed and comfortable with the level of volatility and risk expected in relation to their investment horizon.
«Even savvy institutional investors have fallen prey to financial scams»
We have also seen established online providers offering excessive leverage on trading instruments, often contrary to clients’ interests. Of course, clients need to be vigilant about misinformation, steering clear of get-rich-quick schemes, and make sure to stick to regulated providers they are fully comfortable with. Even savvy institutional investors have fallen prey to financial scams.
Many investors still prefer guidance when they invest through a managed solution. Investing in funds with diversification can be a wise choice for people without the time or desire to pick stocks or other investments for their own portfolios. The problem is that most managed investment solutions presented to average investors by their providers are frequently too expensive or underperforming – and all too often both. They also sometimes only include the company’s own funds and products, leaving better-performing solutions outside of the clients’ purview.
«Many also want to invest in long-term trends and themes that they believe in»
Again, digital solutions that combine guidance with transparency, performance and lower costs are on the rise. Many also want to invest in long-term trends and themes that they believe in. For those investors, products that allow investment in trends such as robotics, clean energy, electric vehicles, environmental, social and governance, and cybersecurity to name just a few, are more relevant than ever and can be made available to everyone digitally.
This shift towards more open business models with clients at the center holds a lesson for the wider investment industry. Business models that do not have clients at the center are quickly becoming obsolete. In my view, the model of the future focuses on global access to all asset classes built on efficient global technology that is open to outside partnerships.
«The trend of online trading is irreversible»
Providers insisting on building everything themselves will simply not be able to keep up with technology, competition, and client demands. By running a more open model leveraging specialized solutions from partners, investment providers can build a low-cost, flexible and state-of-the-art client experience. And the flexibility of running an open model allows for quicker and cheaper adaption to clients’ changing needs as new products and services can be added, without adding high costs and complexity.
The trend of online trading and investment is irreversible and should be a warning sign to businesses that do not offer their clients the choice and transparency to make their investment decisions. As more and more people, empowered by technology, transparency, and knowledge, decide to take control of their own destiny when it comes to reaching their financial goals, the investment industry will need to respond by opening up its business models through better technology, more transparency and choice of investments. Only then will they reap the benefits of digitization and retain and grow their client base.
Kim Fournais co-founded with Lars Seier Christensen and Marc Hauschildt Midas in 1992 and renamed it Saxo Bank in 2001. Today, he serves as the CEO of this online bank. The company is also the main sponsor of the Danish think tank Center for Politiske Studier (CEPOS), which is committed to classical liberalism, and the Danish cycling team Team Saxo Bank.