Would you buy an index tracker from Amazon?

3) However, they will need to change how they treat their customers.

The world’s wealthiest, most-powerful firms, like Amazon.com (AMZN), Microsoft (MSFT), and Google (GOOGL) have taken their first, tentative steps toward being involved with investment services. Tangibly, Amazon has partnered with Fidelity to create a “virtual reality financial adviser” and Microsoft and BlackRock (BLK) have joined to build a retirement platform. Google has not directly entered the fray, but it has dabbled with various consumer-finance projects, leading Forrester to suggest that Google is a “potential threat to established wealth management firms.”

From my perspective, the threat is more than potential. It is real, although not yet imminent. Each internet giant already touches more investors than does any existing financial-services firm. The rewards for convincing those customers to share their investments as well as their personal information are enormous, because, after all, that is where the money is. On a £1 million portfolio, even a modest annual fee of five basis points (0.05%) generates £500 in revenue, nearly all which heads straight to the bottom line.

The possibility is very much there. Perhaps not with baby boomers, who were raised when investment advice was covered by brick and mortar. Handing over their investments to an internet firm may prove a step too far. However, it certainly is not with the following generations, who know Amazon better than they do Vanguard.

Millennials trust tech

They are likelier to believe in Amazon, too – even for investment matters. A Facebook study found that only 8% of millennials admitted to trusting financial institutions. That is lower than the 13% of under-25s in the United Kingdom who would consider an investment offer that came through social media. In other words, the young are fonder of social media’s equivalent of boiler-room calls than they are of traditional investment-services providers. That’s taking faith in technologists too far. However, the underlying belief is reasonable. The days of investment artistes are gone. To be sure, boutique firms remain. For the foreseeable future, some active managers will stand out from the crowd by offering meaningfully different portfolios. Most investor assets, however, will be parked either in outright index funds, or in well-diversified actively run funds that, for all practical purposes, behave like index funds.

And why shouldn’t Amazon or Google, or any number of other technology companies vend such investments? If there is one thing at which Amazon excels, it is selling packaged goods. The company is not much in the habit of creating those items – its media library aside – but it could build its own investment portfolios if necessary. Or it could hire an outside manager, at an exceedingly low expense ratio, especially given how many assets it would be likely capture.

Similarly, as the success of target-date funds has demonstrated, much investment advice is a commodity. Not all, of course. As investors become older, wealthier, and have larger portfolios, their financial situations become more complex, so that an investment solution that suits their neighbours may not suit them. But in most instances, what applies to one 35-year old middle-class investor, to cite an example, will apply to the next.

In short, as the internet generations accumulate wealth, traditional investment-services providers will wrangle with technology companies for control of those assets. Each technology firm will have different strengths, and therefore will approach the marketplace in different fashion, but the rhetorical lines can be foreseen. The existing providers will tout their subject-matter expertise, while the technology firms will promote their familiarity. Their pitch: invest with the company that you know and that already possesses much of your data.

Tech firms need to raise their game

Now for the challenge: how to improve the customer experience. Today’s technology-company customer services are, in a word, abysmal. The most-effective, although still insufficient, assistance comes from online chat programs. Then come the organisations that have automated phone lines that ultimately connect with poorly trained call-centre representatives who are not permitted to make decisions. At the bottom are those firms that will not answer the telephone.

Those who run investments for a living realise that their clients cannot be treated so cavalierly. When investors are worried about their portfolios, they are really worried. They cannot be shunted off into a virtual corner, referred to a FAQ link, or told that they will receive an email response within the next 24 hours. They need an answer now – and from somebody credible.

That problem sounds easy enough to address: siphon some of the additional revenue that comes from delivering investment services toward hiring, training, and maintaining a topnotch support staff. I suspect, though, that the change will not come easily. It means a cultural shift. Technology organisations are accustomed to internet connections. They live, breathe, and think the web. Retooling their service model will require retooling their mindsets.

In addition, although distrusted today by young employees, the current investment services providers have many years with which to make their acquaintances. Their industry may resemble the opera, which appears to have a grim future because its audience is old, but which continually replaces its departed views with a new crop of seniors. That may prove so with investment services, as well.

I predict the battle, but not the outcome.