Blog

Digital Innovation in the Asset Management Industry

By Benedict on April 25, 2018

We read with interest a recent survey released by Alpha FMC revealing that asset managers see digital transformation as a top priority but two-thirds are slowed down by legacy systems and culture clashes.

We see first-hand the challenges that working with and migrating away from legacy infrastructure can bring. But with pressures on the industry growing, technology is becoming more and more of a differentiator. It takes a bold leader to make the move and take a different approach. 

What is the role of the FinTech industry in driving innovation?

Alpha FMC’s survey revealed that while FinTech remains a topic of interest, few asset management firms are actively involved – either through acquisition or substantive partnerships. The FinTech industry continues to suffer from definitional problems. What exactly is ‘FinTech’?  Does it mean a small start-up company or is it any large company that sells technology to financial institutions?  Another challenge facing the industry is that of partnership and collaboration: A lot of large financial institutions are not set up, culturally, technically or even legally to deal with small companies at this stage - though this is improving all the time. The asset managers that get it right will be those with flexible internal processes and an excellent technical team who look to smaller FinTech companies who can do the innovating on their behalf so they can focus on the hard business of managing peoples’ money.

Digital dilemma 

The survey asked 15 of the largest asset managers about their plans for digital transformation. This covers a huge amount of ground. It means different things to different people, depending on a person’s role within an organisation. Historically, ‘digital’ is associated with programs to invest in mobile apps, online self-service, chat rooms, social media etc; and a move away from traditional client-engagement models, organised around face-to-face contact, telephone and email etc. 

Unsurprisingly, only 8 per cent of those firms surveyed have a blockchain development plan in progress, compared with 31 per cent who have a robo-advice platform. We don’t see blockchain as a ‘digital’ solution, it's a back-end infrastructure ‘technology’ solution whereas robo-advice is delivering an interesting online user experience and is more likely seen as a digital solution to an existing problem.

Collaboration not disruption 

Clayton Christiansen argued in ‘Innovators Dilemma’ (published 20 years ago), that it was not a rational financial decision for well-run incumbents to invest in disrupting technologies. Not only are they not able and unwilling to do this, it’s not their job to do it. I want my asset manager to focus on managing my investments in line with its mandate and generate returns for me. Experimenting with blockchain, AI and who knows, perhaps even drone technology one day, is not what I want my fees to be spent on. I'm not surprised that 69% of asset managers don’t feel the need to be a digital innovator. 

We want to foster a culture where the industry can work together to solve common challenges. Let’s not start with a technology solution and retrofit it to a problem. Instead, FinTech’s can truly add value by listening, analysing and then building the right technology in partnership with the asset management industry.

The opportunity

The research suggests that most respondents are prioritising their digital transformation and are shifting from a product-centric view to an increasing focus on the client. For us, this is a fundamental change and it’s an area where technology can really facilitate that move.

Consultancy firm Oliver Wyman recently published its Wholesale Banks and Asset Managers – Winning Under Pressure report which highlights many of the challenges we see facing the market. It sees a “strong case for ‘greenfield’ builds. Under this approach, technology firms, working in partnership with Asset Managers, could launch a platform-based offering with a core data integration and orchestration layer, combined with a strong analytics environment, and an open application programming interface (API) front-end. The speed of transformation for Asset Managers migrating to such a platform could be rapid.”

It's here where we see technology and digital making a real difference. We believe that cross-industry collaboration and less disruptive transformation is how we can improve the overall customer experience and free the asset management industry to concentrate on managing money, not on non-differentiating  technology.