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"Dis-intermediation" and the private investor

27 August 2016

 “Dis-intermediation” and the private investor: how changing market dynamics are meeting demand for greater choice and control

The idea of “dis-intermediation” is gaining currency in the financial services sector. Right across the industry product providers and clients are increasingly interacting directly rather than going through intermediaries – from customers dealing with insurers themselves instead of via brokers to the rise of crowdfunding, where platforms are essentially enablers of financial backing for start-ups.

For private investors, market dynamics are changing. We are seeing the demand for greater choice, control and transparency over the investments in their portfolios becoming greater than ever.

There are several reasons for this. One is that, while advisors are often valuable sources of guidance and technical expertise in key areas such as pensions or life assurance, providing more sophisticated, high net worth clients with a range of high quality investment opportunities is a much tougher challenge. In general and as a result of the changing regulatory landscape, advisors are becoming more and more risk averse, so the investments they tend to offer are increasingly of the plain vanilla variety - fine for most retail clients, less so for more experienced private investors.

Clients in this bracket often have diverse and specific interests and varying levels of risk appetite, which is hard to cater for without providing a bespoke service – something which private banks are also shying away from for all but the ultra-wealthy. This polarisation is leaving a significant hole in the market.

However, a new generation of innovative product providers who aren’t reliant on intermediary distribution channels to get products to market are starting fill the gap. They are developing an ever-wider range of opportunities to meet different requirements and risk profiles on a direct-investment basis - and bringing down costs as a consequence.

From low-cost, direct-access equity funds, to “experienced investor collectives” through which private investors can invest in alternative asset funds or back established, later-stage SMEs, to P2P platforms, disintermediation is starting to impact the whole investment spectrum.

It’s this access that is the key to this revolution. Although there has long been demand for self-selection, previously the availability simply wasn’t there on any kind of scale. Investors may have been able to source opportunities through their own networks of contacts but open market options have been extremely limited – until now.

Of course, not everyone has the time, expertise or appetite to identify suitable investment opportunities or take charge of the contents of their portfolios for themselves, but those that do are finding it a liberating experience.

Experienced investors want attractive, risk-adjusted returns delivered by high quality products – and they are finding that they are increasingly able to source the kinds of opportunities that interest and excite them for themselves. The benefits for both investors and product providers are clear: it’s an efficient, transparent and fairly straightforward way of interacting. All in all it looks like a trend that’s set to continue.

By Claire Madden, Managing Partner of Connection Capital LLP


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