Group Co.
Free Trading Apps, Entrepreneurship and the Future of Wealth Management
Traders Magazine Online News, May 16, 2019
Advances in financial technology have seen an influx of inexperienced investors speculating on the stock market, foreign exchange and cryptocurrencies. However, a slick interface and friendly ‘robo-advisor’ is no substitute for the wise counsel of an experienced wealth and investment adviser. Predictions of the industry’s demise at the hands of trading apps, such as FreeTrade and Robinhood, are misplaced. The boom in use of these services and lower barriers to entry for investment are to be welcomed, but many of these ‘armchair traders’ would do well to consider channelling their energies into entrepreneurship, rather than diving head first into the volatile world of stocks and shares.
For many of the users of these services, an app is their first introduction into the world of investing. Understandably, there are concerns that without some kind of education in creating and managing a portfolio, these individuals risk considerable losses. Rather than adopting a clearly defined and consistent investment philosophy and long-term approach, backed up by specialist research across a diversified portfolio, new investors may end up taking uncalculated risks.
Of course, choosing instead to found your own business is not without risks. However, the rewards are far higher than in trading stocks and shares – financial rewards, of course, but also the satisfaction of seeing a passion project succeed and expand. Savvy investors should not overlook the tried and tested approach of investing in businesses which have real potential for growth but also benefit a community. By selecting industries close to one’s heart, as I did in the fields of publishing, education and sport among others, the investor is closer to the business, with the specialist knowledge and passion that gives them an edge over rivals.
Of course – the two are not necessarily mutually exclusive. A fervent armchair investor can be an involved entrepreneur. And there is an argument to say that the millennials downloading FreeTrade and eToro today are honing the skills they will to become tomorrow’s entrepreneurs and large-scale investors: managing their emotions, building portfolios and spotting key trends, to name a few.
For now, free trading apps account for only a small part of the market in comparison to the wealth management sector. Therefore, while the growth of this sector seems inevitable, those predicting the end of traditional wealth management are off the mark. As these young investors gradually have more available capital they will outgrow the more limited offering of free trading apps and sites, inevitably looking to established platforms to manage their investments.
Ultimately, there are valid reasons why investment has traditionally been managed by specialists, and why those with wealth to invest employ others to make these decisions on their behalf, or at least advise. These are trained and regulated professionals, who have not only the skills and knowledge but also the access to the full range of investment opportunities. For those who want to use their substantial capital to encourage entrepreneurship and business growth, the counsel and research service that these professionals provide is invaluable.
That is not to say that wealth managers should sit back; they should respond to the technological boom by adopting many of the features which these newer companies are using, and focus on drawing in the young investors and future entrepreneurs who use them. This means blending the user-friendly and accessible approach of today’s online trading services with the more long-term, comprehensive approach of a wealth manager. Clients who have been users of these apps may also expect a greater degree of involvement in the choice and management of their investments, which wealth managers should respond to – a trend towards more active and engaged investing shows that the industry is taking note of clients’ interests.
The future of these apps looks bright – but their capacity to disrupt is being exaggerated. Investors who have a passion for entrepreneurship and want to see the social impact of their investments, as their available resources grow, are likely to look beyond these platforms to the wealth management industry, for a more full-service approach.
As every savvy entrepreneur knows, when it comes to investment, it’s the long-term view which counts.
Tale Heydarov is the founder of TEAS Press Publishing House and LIBRAFF chain of bookstores in Azerbaijan
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