To oversimplify and leave the jargon out, democratization of wealth is the opportunity and ability of the common folks to have the same opportunity for income generation and savings as wealth folks - what in common parlance is called a level playing field.
From an investment advisory perspective, there has always been a lopsided focus on wealthy people and institutions. However, 3 main catalysts have increasingly started correcting this concentration of attention and widened the field more: market demand, availability of instrument and technology as an enabler.
Market demand
- Awareness on insufficiency of pensions. With the realisation that pensions are not going to help address retirement needs, there is increased awareness to have alternative savings in place.
- Evaporating traditional job market has led to the need of having alternative income/saving possibilities.
Availability
- Financial institutions open towards addressing retail customers. Realising the potential of the retail market, they start looking beyond traditional High-net-worth individuals/Institutional focus.
- Mainstreaming of non-traditional investment options. Cryptocurrencies, art, wine, stamps, rare diamonds etc. are either accessible by default or have started becoming accessible. Hence the potential for mainstream investing.
Technology
- Enable mass access to traditional market. Technology evolution and innovations have made it possible for participation in financial markets in large numbers. It is not only about ability to trade. It is also about education and capacity building so that retail investors are empowered.
- Enable mass access to non-traditional market. With partial share possibilities on non-traditional investment opportunities like art and wines, it is suddenly within the sphere of a retail investor. Cryptocurrencies by nature have been “democratic” instruments.
A growing interest
The non-traditional instruments have been gathering a lot of interest, and rightly so. The following chart compares the percentage return of non-traditional instruments against traditional markets over the last decade. In fact, according to Prequin, global alternative assets are likely to surpass 14 trillion USD by 2023.
Alternative investment performance over 10 years
Performance NASDAQ-100 / S&P 500
Artprice100 Vs S&P 500: 2000 to 2021
People are not rushing to invest money in pink diamonds or antique cars. Nevertheless, hedging strategies are certainly gaining traction with these “weird” investments. Furthermore, coat-tailing (copying large successful investment strategies), self-service simulations, social investing is easily possible with state-of-the-art, specialised and affordable digital tools.
Explore or exploit
Democratization of wealth is not a fad but a very real reality, which seems to accelerate all the time. We will see more willingness to support a broader retail consumer. By cutting the clutter, simplifying hitherto complex investments and making these options available & viable, early movers amongst the incumbent financial institutions will continue to explore alternative investment options. Challengers on the other end are already exploiting this opportunity.
TietoEVRY has been making pioneering efforts to catch latest trends. WealthMapper is a modular digital toolkit that utilises the latest developments in technology and distribution to speed up innovation and time-to-market. This empowers financial institutions to create meaningful conversations with their customer and offer self-service tools to their customers. Feel free to reach out to me for further details.
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Sameer is responsible for insurance and wealth solutions. He actively promotes open ecosystem thinking that powers our WealthMapper and Insurance-in-a-Box platforms. At TietoEVRY, he has a long experience of working within the Healthcare, Insurance and Wealth domains. Prior to this, he worked as a product manager and a brand manager in the food, processing and packaging industry. He is passionate about translating technology innovations to business reality leading to better quality of human life.