The asset managment industry is on the move
Ever since 2007 the banking industry has been undergoing a major transformation with the implementation of higher capital requirements and stricter compliance rules, which now more than ever aim to fit clients neatly into a “box”, as well as reforms around the exchange of clients’ fiscal data. Throughout this industry adjustment process it’s the clients who have been left high and dry as the reforms have forced them into taking a much less active role in the decision making process.
In fact, industry-wide budget constraints have limited the rapid development and implementation of fully fledged and totally autonomous business-to-consumer applications. In other words, the delivery of online personalized product recommendations that empower and involve end-consumers in a 360-degree advice-purchasing process are still far away.
This is problematic because consumers are increasingly self-educated and aware. They want to explore and gain insight into growing opportunities and they also expect some kind of added-value for the charges debited by the provider. With digital tools and some form of analytics becoming increasingly available, the asset management sector in particular is not immune to the growing digital awareness of its customers. As in other sectors, it’s in the interest of the industry to recognize the opportunity and give up the “wait and watch” attitude in order to prevent external disrupters from breaking into the asset management market and taking advantage of the opportunity to respond to investors’ needs. There are a few compelling reasons for moving before it is too late.
A changing paradigm
I remember very well my initial years as an investment advisor. With the vast majority of our clients we made a limited number of contacts during a given period of time and when the client was convinced, a master plan was hammered out as to where and how much to invest. To a certain extent, this was close to a one-way dialogue, we provided information about opportunities, and only on rare occasions were the ideas challenged. Today, the vast majority of our clients, whether they are from Africa or the United States, are connected and are using an array of digital tools to gather information on the latest economic developments and news about particular companies. They are well informed with up-to-date financial information and are capable of evaluating the respective financial impact on their assets at the same time as we do. Hence, my investment decisions are permanently challenged on their correctness and the likelihood of success.
As with many other industries, consumers in the financial sector are becoming more informed, empowered, and demanding. Looking around, the impacts of disruptive ground breaking changes can be recognized in other sectors. For example in the healthcare sector, about 70% of patients use the Internet to find healthcare information, and about 40% of people who diagnosed their condition through online research had it confirmed by a physician. In the financial sector, investors arm themselves with critical information from different online sources (investment communities, blogs, etc.). We therefore conclude that as more data becomes available, the more it will “travel”, and the more will be gleaned from it. Ultimately, expensive investment management services will be rejected by investors. In this context, one can certainly recall what happened in the music industry. Music fans no longer buy an expensive CD, but efficiently download their much loved piece of music from the Web for a few cents.
The changing pattern that means that data and information are now constantly available, requires asset management firms to join and participate in the digital dialogue and influence the conversations. Only in this manner can they stay in the loop and add value to their customers. Not participating will eventually mean that the company will find themselves on the back foot, and the natural client renewal process may, over time, come to an end.
Engagement
As investors’ demand for information increases, companies can, through the release of various types of information occurring when a prospect interacts with their website, aggregate information about online behavior. There are two avenues in which the company can excel when it comes to data. The more traditional approach consists simply of marketing their products and services to the prospects, while the second avenue consists of studying usage patterns based on click-behavior and then adjusting their existing lines of products, in addition to developing new ones. According to a study undertaken by MGI, this more complex process could generate billions of value per year for companies by improving the efficiency and effectiveness of their products. In this context, I came across an analysis in recent days showing the 100 most socially engaged companies [link]. It’s surprising to see that the ultimate rate of engagement is relatively low. When taking this analysis a step further by looking at the actual offerings of these companies, we noted that most of them do not seem to have a fully-fledged business process. So should we conclude that they crawl through information just so they can adjust their existing offerings to better pitch them to their customers?
Personalization of the online experience
Whether low or high tech, investors are seeking to get valuable information out of the box. It’s our belief that the investment service can be structured so that it becomes a fascinating and seamless online process for everybody. Think, for example, of the business transformation undergone by the travel, and in particular the airline industry. Once their process was very much an in-person service for just a few consumers, but in the last 15 years or so, the sector has transformed itself into a paperless mass-market service.
But beware – statistics show that 86% of customers stop doing business with a particular bank if they feel misunderstood. So for asset managers moving in the digital arena it is therefore advisable to build a broader menu of service offerings, including issuing vetted information, instead of merely using technology solutions to process the existing business more efficiently. Hence, I come back to the key principals I used 8 years ago when I became an independent asset manager: build the box around the client’s requirement, but never try to squeeze him into an existing one. It’s not going to win the job in the long term.
Welcome back to the truly personalized investment management approach.