Brazilians have traditionally invested conservatively in basic savings accounts and fixed income products, but that is changing as Brazil undergoes a series of demographic and macroeconomic transformations that encourage diversification. As interest rates and inflation drop to unprecedented levels and the number of middle-class households grows, retail investors have started searching for higher yields and make more medium-term investment plans.
On the institutional side, high government indebtedness has led to a decrease in government expenditures and investments as well as a lower participation of state-owned banks in the economy. Consequently, the crowding-out effect on private investments has weakened. This renewed need and political support for private funding coupled with low interest rates is stimulating corporates to tap capital markets, matching investors’ needs for diversification and higher yield.
The combination of search for diversification and higher yields on the demand side and need for alternative sources of funding from the supply side is triggering a change on the structure of the Brazilian investment landscape, impacting the investment market in Brazil:
- Investors are likely to diversify into a broader set of asset management products, shifting away from risk-averse savings products into more attractive investment vehicles; the total share of saving accounts (Poupança) and cash investments has dropped from 25 percent in 2012 to 20 percent in 2018 and we expect this trend to continue in the next coming years.
- Investors are likely to seek tools and advice in navigating a more complex financial planning landscape as product choice and diversity multiplies. This drive for product diversification within a more complex product offering is driving a growing demand for comparison platforms, risk management tools and advisors that can offer customized and individualized investment guidance. In parallel, the expansion of digital solutions is providing greater access to products and information that were once restricted to subsets of banks’ clients.
The trend to channel diversification is set to accelerate as challenger institutions, with nimbler business models that leverage truly native digital analytics capabilities, are quicker to provide investors with customized solutions that better meet their needs. In a survey with investors, over 70 percent of respondents are satisfied with the product range offered by independent platforms, whereas only 35 percent are satisfied with banks’ product range.
While banks have an established trust relationship with a large base of clients, they have to deal with complex legacy systems, processes and organizations that are expensive to maintain. Challenger institutions, on the other hand, have a lower client base and brand recognition, but are light, quick and have greater capacity to provide niche offerings and greater tailoring to broader base of clients.
In Brazil, we estimate that independent platforms hold nearly 10 percent of clients’ assets and that this share could grow up to 25 percent in 2024. As investment platforms expands, they will have the possibility to tap into adjacent markets – such as payments, insurance, and credit -, tapping into the deep knowledge they are constructing of their clients, a nascent trust relationship and leveraging their light and quick structure to provide more tailored solutions than currently offered by traditional institutions.