From the largest traditional asset managers to the smallest alternative and wealth management firms, asset managers are confronted with a great many changes and challenges. Perhaps the greatest challenge, however, is that of digital technology. In the aftermath of the global financial crisis, the asset management industry has seen a widespread epidemic of poor investment performance, a shift of investor preference towards passive, low fee strategies. Compounding these challenges are regulatory reforms and present-day macroeconomic uncertainties. It is unsurprising, then, that many asset managers have little time to reflect on what lies ahead. Meanwhile, however, digital technology is on the rise and brings with it a call to ‘do or die’.
It is a well-known fact that the financial services are ripe for disruption by agile and innovative FinTechs. Estimations from established institutions suggest that 25% of the existing market share could be at risk; FinTechs themselves expect to take as much as 33%. While these estimations represent great danger for established institutions, they also present an opportunity: FinTech disruption affords established institutions a chance to harness innovation, either by through partnership or self-improvement – either way; they must ‘do or die’.
Many asset management firms have adopted technology at the core, such that it plays a central and crucial role at every step of the investment processes – from trade execution platforms to risk management systems to operations and client servicing functions, and automation throughout. But in most, if not all, cases there is still quite some way to go by way of advancement before technology is optimised. Many firms have multiple trading platforms, reflecting the plethora of products, channels and currencies they deal with, which is a highly inefficient, expensive and outdated model. Some firms have moved towards the adoption of more advanced technologies, such as mobile, social media, cloud computing, big data and analytics but, again, there is still quite a way to go by way of advancement before these adoptions are optimised.
Perhaps one of the biggest challenges the digital revolution brings to the asset management industry, however, beyond technology’s optimisation, is the impact of digitisation upon customer behaviour. This is leading asset managers to change their orientation from selling a product to selling to a client. At the same time, products are evolving in response to changing investor demands and require advanced digital technologies, such as big data analytics, to be developed. Furthermore, the robo advisory phenomenon has gained momentum quickly and is expected to explode within the next few years, especially as millennials account for a greater proportion of the consumer market.
Whilst digital age brings a series of changes and challenges, it also affords asset management firms an opportunity to combine increased volumes, through digital channels, with the lower cost of digitised processes, thus improving margins. If successful in deploying such an operating models, asset managers will benefit from the faster development of products designed to cater for clearly defined market segments through tailored customer experiences, and produced at low cost. The means by which to achieve this will vary from one firm to another. Across the board, however, it will be important to look at the disruption from FinTechs .