12.
The growth of lifestyle finance
There has been limited appetite from end investors thus far for investment products that are customized to their values, express their values, or even report on impacts relevant to their values. The issue is whether this new paradigm will emerge and whether products can be developed within realistic cost parameters. It seems likely it will emerge, given scale opportunities and millennial preferences for investments linked to lifestyle.
KEY POINTS
- In the Parallel Worlds scenario, we recognize an increasingly democratized world in which individual expression is possible in all consumption choices. Financial services offerings have been largely homogeneous and non-differentiated to date. But the future is likely to be one of personalized, simple, and speedy preferences, and the personalization can be extended to extra-financial considerations related to sustainability and responsibility.
- In this narrative, hyper-customization is possible whereby unique financial goals and extra-financial goals are managed through a customized algorithm with complicated design but non-complex and user-friendly engagement.
- More than a quarter of survey respondents expect demand for investment products that incorporate personal values to increase substantially, and more than half expect demand to increase slightly.
- In the Parallel Worlds scenario, we bring out the greater importance of these trends to millennials. In wider survey work quoted by the Financial Times, 61% of millennials “feel they can make a difference to the world through their choices and actions,” compared with 47% of baby boomers (Daneshkhu 2018; Euromonitor 2015).
- Hyper-customization involves integrating new fulfilment areas into investment products. This includes basic exclusions of investment types or tilts, reflecting positive impacts that an investor wants to express. Previous technologies did not allow that degree of customization. In the next 5–10 years, opportunities in lifestyle finance become scalable—and therefore affordable—and address the growing refinement of consumer tastes.
- These developments represent a widening of the baseline for ESG investing. ESG is developing through symbiosis with the explosion of big data. Investors increasingly require companies to reveal far more explicit data and softer data on their businesses, goals, values and outcomes, and impacts. With access to these data sources, and other data available on companies, investors have a broader range of opportunities. This narrative aligns with the new paradigm referred to in Future State of the Investment Profession that extends the two dimensions of return and risk in the investment framework to three dimensions, with the addition of impact.