The Future Of Intermediaries: Can 'the Middle Man' Improve Its Reputation?

Woodford made a controversial move to suspend his fund due to threats of investment withdrawals following a period of poor performance. 

This has led many people to call into question the reputation of the middle man and to ask whether the role intermediaries play has become less important.

If this is the case, what might the future of the securities value chain look like for traditional brokers and other intermediaries?

We recently produced a white paper looking at the future of the exchange in a climate rapidly being affected by technology.

It assesses a number of different factors affecting the way exchanges operate to predict what this space will look like in the next five to ten years.

The factors explored in the paper include sustainability, the cloud, the sharing economy, unbundling, protectionism and data protection.

The key questions for investors in an uncertain world

The most likely scenario will be that the listing will still be viewed as an indication of quality, but intermediaries will come under massive pressure and digitised assets will boom.

New technologies will provide automation for many previously labour-intensive roles, which will make the process of listing more economically viable.

This is due to the automation in the production of legal documents, accounting standards and due diligence taking out the need for human intervention and expensive labour.

In this scenario, with global tech companies setting up issuing venues to support activity in their ecosystems, there will be a huge increase in the number and diversity of digitised assets.

Securities will also become more directly accessible by issuers and by investors due to more digital platforms being offered as well as the adoption of these new platforms/technologies.

This direct accessibility will drive down the need for intermediaries to be involved in the buying and selling of stocks, putting their roles under increasing pressure.  

Pridham Report: Fund sales surge in June 'despite Woodford scandal'

While crypto assets will have maintained some popularity due to their potential for diversification, it is unlikely that permissionless distributed ledger (DLT) and crypto assets will become dominant on the exchanges.

This is due in part to the fact crypto assets have experienced a loss in popularity as investors have become increasingly aware that the conditions necessary for permissionless DLTs to become dominant are not indicative of the current market environment.

The risk of cyber-attacks, however, have significantly increased as the attacks become more sophisticated.

In fact, the use of quantum-mechanical phenomena such as superposition and entanglement to perform computation may have become a reality.

The second most likely scenario is that listing is no longer viewed as an indicator of quality by investors, and non-listed financial investment classes become increasingly popular.

The more frequently seen and well-known listing venues may become displaced by open-issuing markets due to investors being over-served in protection, but under-served in choice of stocks.