Living in an Uber modern world

Renato Mota, General Manager Distribution 

Renato Mota

$50 billion – that's the value of Uber. In many parts of the world Uber is not yet legal (including Australia), however the rush to be a part of the 'new way to do things' is recognition of the fundamental shift in how commerce and society is changing. 

While geopolitical tensions and a handful of tech start-ups occupy the headlines, the world's shifting demographics and behaviour will have major implications for almost every aspect of life.   

That's certainly the case for our investment portfolios. After all, how do you apply classic investment theory to a portfolio when Uber, at just five years old, is valued at more than 72 per cent of the Fortune 500, including such household names as Fedex and Kraft1?

So what can we expect for our investment portfolios?

There will be a shift towards companies which distribute rather than manufacture. As more people are able to be connected (50 per cent of the world's population is expected to be connected to the internet by 20302), companies who can facilitate those connections will grow strongly. Asset poor companies like Uber and Airbnb represent this new business model – c2c – consumer to consumer.

With an ageing population, a one-child policy, a rising middle class and a minimal welfare safety net, aged care services in China may be the next big thing. In fact, globally sub-Saharan Africa is expected to be the only region not ageing by 2030.

What other areas of the global economy could be expected to grow?

  • Urbanisation – as more and more people move to the cities (another 2.5 billion people are expected to do so by 20503), infrastructure support, particularly technology for 'smart cities'.
  • Education – with a rising middle class, demand for education, particularly online.
  • Food – a rising population will put pressure on water and food security and bio-efficiency.
  • Shipping – an increasingly globalised world will see the transport of goods increase.
  • Energy sources – while new technologies such as coal seam gas will increase in the coming decade or so, these are likely to be overcome by renewable energy technology.

What will the future client be like?

Client loyalty is expected to decline in the coming decades – replaced by endorsements as the predominant driver for client engagement. With the average person spending 1.72 hours each day on social media4, 'likes' and social networks will become the new advertising.

At the same time as client loyalty erodes, trust will only become more important in an era where data security and privacy demands clash with ever increasing amounts of personal information online.

Trust however won't need to be from personal experience. Decisions will be influenced by friends, colleagues and even strangers online.

The future may also see clients expecting financial advisers to compete for their business. We have seen this model with airfares and hotels. Now recently launched Australian company, flongle.com.au which gets mortgage providers to bid, through reverse auction, for mortgages, represents the first steps into financial services.

From a product perspective, for a generation which expects immediacy, flexibility to get the information they want will also be important. Investment platforms will grow as investors seek to aggregate investments, assets and liabilities. At the same time as wrapping products become more sophisticated, simplicity and the user experience is key to success.

Clients are also likely to have target oriented outcomes, rather than focus on investment performance alone. Clearer risk management and diversification strategies should see multi-asset funds grow. This will also allow financial advisers to focus on their core competencies, including retirement planning, rather than asset allocation.

1 http://fortune.com/2014/12/04/uber-valuation-40-billion-fortune-500/
2 European Union Institute for Security Studies, 2011
3 http://esa.un.org/unpd/wup/PressRelease/WUP2014_PressRelease.pdf
4 https://www.globalwebindex.net/blog/daily-time-spent-on-social-networks-rises-to-1-72-hours


Important
The information contained in this newsletter is provided on behalf of the IOOF group of companies and is intended for financial adviser use only. It is given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication. Any examples are for illustration purposes only and are based on the continuance of present laws and our interpretation of them at the time.