Welcome to the era of democratisation of investment: what has changed?

Democratisation summarises a concept that means making accessible services that were previously available to only a few people and making them affordable, ideally to everyone.

In the financial sector, there are traditionally many services that are only available in private banking, a service available from hundreds of thousands of euros upwards and sometimes millions of euros of investment or assets per customer.

At Indexa Capital we have made available the management service for fund portfolios from €3,000 upwards; it was typically available from €100,000 upwards.

Another example of accessibility are the funds managed by Vanguard (the world's largest indexed fund manager), which usually requires a minimum investment of €5 million per fund in its institutional class + investment funds (a renowned class for very large institutional investors). At Indexa Capital we have managed to include these funds in portfolios from €3,000 upwards.

In the United States they are a bit ahead, but it is very interesting, because we can see what is going to happen in Europe. That said, I do not think Spain is much behind the rest.

There have mainly been two important changes. The first is technology, which enables us to automate processes and reduce human labour. By reducing human labour, we reduce costs and with less costs we can make affordable services for more people.

Where in private banking you typically have a person manually carrying out operations that involve many costs, automation allows you to do this work on a daily basis for tens of thousands of customers at a much lower cost. Automation enables us to access lower minimum investments.

The second factor is also very important, and it is the Internet, as it allows us to achieve a direct distribution, in which the investor contracts the service directly on the website, enabling us to skip the large banking groups' distribution network and this entire branch network with agents, branch managers, private bankers, and so on.

Banks have very high costs, partly because they are still not automated, and largely because they have a distribution network that costs 80% of what they charge customers.

At Indexa Capital, with the online and further automated investment services, we are able to reduce these costs: we can charge the customers less, and we can afford to start investing with a lower minimum amount.

Training and regulation are key ingredients. There is a lot of talk about financial education, but I think that the concept of education is a bit paternalistic, because we refer to education as something more for children. I prefer to call it training, so as to bring awareness to the importance of people being trained. Customers have to participate in their training.

There is much more content and more information available now; people have the possibility of receiving much better training.

Training is especially important in investment matters, because you have to understand what you are investing in, and it is not always easy. It is not always easy, because not everyone tries to make it easy for you. We need to explain what it involves in a simple way, try to make the customer understand what they are investing in, the risks and the liquidity.

The risks are how much they can lose, the probability of losing and when they can recoup their money; if they can recoup it when a problem arises or if they will have to wait.

The idea is to give investors the tools required to make an investment decision with all the information available.

By offering more and new services or better investment services, customers can diversify more, which means less risk, lower costs, and thus higher returns.

When you manage to make customers more profitable, by means of the long-term compound interest effect, we are able to turn their savings into a larger capital and make them wealthier. Therefore, the main aim for each individual and society at large is that private savings compensate somewhat the future reduction of public pensions.

In recent decades, what we have seen is that there are fewer banks in Spain and that they are becoming bigger and bigger. There is increasingly less competition in the banking sector, and what we achieve with new entrants and projects is to contribute to more competition. Not more competition in terms of product, but in terms of services available to people that were previously inaccessible to them. There is also more competition in fees and costs.

We do not know who will win, whether the banks or new entrants; it will probably be a mix of both, but what is certain is that the customer will benefit from it all.

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This content is merely informative. This video is merely financial training offered to you by Crescenta, without the intention of giving any type of personalised investment recommendation.

It is neither any type of advertising of financial instruments nor a recommendation or purchase offer.