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The disruptive technology is everywhere. The question is not whether it happen or not, but rather when and how. Learn about possible impacts to the asset management industry. |
Across most industries, digital technologies are beginning to disrupt the existing business model. Mastering these new technologies will, of course, determine the success or failure of a corporation. In the asset management sector too, investors, especially the younger generation, are used to navigating the financial landscape on their own. This sector is poised to leverage its offerings to keep pace with these changes. At present, about 80% of bank customers in Asia, Europe, and the United States of America are engaging in some version of self-service banking e.g. viewing balances, paying bills.
Digital technologies will enlarge the boundaries of each business and providing new perspectives and opportunities for both existing as well as new providers. New entrants have a substantial business advantage as they can often see business opportunities more clearly than existing providers. Such challengers will capture significant market share by offering valuable information, which has been withheld either on purpose or through ignorance by existing providers, through inexpensive channels. Established providers will try to defend their market share through adding value such as experience and emphasizing the personal relationship with the client. Yet, in this equation contenders do not combat at the same arm’s length. Digital natives and Millennials tend to be much less loyal than present customers – they simply wish to see their financial needs meet in a different manner, i.e. online, in an interactive and multichannel environment.
In an ideal world, customers could interact with a company’s database 24 hours a day, 7 days a week. But meeting ever-increasing customer expectations is a key issue for independent asset managers who have been lagging behind in this respect. To stay independent, they may need to create their own end-to-end online investment selection, advice, and management application, as well as client acquisition tools.
Setting up an ultra-convenient digital experience is highly complex; not only does it require a sound comprehension of the business environment, but also, and more importantly, the building of sophisticated big-data capabilities that interact with external providers, social media, and location is a must so that each customer is given individual, tailored attention. The benchmarks in this field are e-commerce leaders such as Amazon, Apple, and Wonga which all offer a personalized real-time experience.
For the asset management sector in particular, one could also imagine that many of the decision making processes presently taking place behind the scenes will be cloud based in the future. The new smart finance environment will increase efficiency, deliver specific information in a timelier manner, ensure compliance, and enhance customer engagement. Broader based industry examples show that IT projects typically overrun budget by about 45% and yield on average 56% less than forecasted. Yet, correctly seizing digital opportunities can dramatically improve revenue growth, and the high initial investment required is an opportunity for first-movers rather than a constraint. In the future, the size of AUM is important but not key! We believe that the extensive use of technology to improve performance and connect with clients in their target markets is more important than AUM. The new technology will also transform the way we market our services. It will drive revenues through cross- and up-selling, reduce costs in the end-to-end process, and improve the risk management processes. Client segmentation as we know it today will no longer be the norm; each organization will have multiple mini groups of clients. Technology will allow numerous strategies to be offered as tailor made asset management solutions.
For a few years now, due to higher transparency requirements in the asset management market, margins have been declining. Yet in a competitive market this is a self-destructive process. Applying reduced margins to a highly sophisticated service because it is offered online, is wrong. In fact the opposite should be true; a highly valuable service offered to clients deserves higher margins.
The extensive use of technology alone is not sufficient. The key for success is the combination of strategy, technology, data quality, the skills and knowledge to design and develop the ecosystem, and appropriately anticipating how future requirements can create value. Out of experience we note that the bottleneck in the undertaking is a huge shortage of asset management-IT talentsand marketers who are literate in online asset management. To circumvent this deficiency one could split the task into projects, create teams and then train applicants in boot camps. At the project management level this obviously represents an additional challenge in terms of time and investment.
Digital is likely to become the predominant sales channel and client acquisition tool in the asset management industry. Independent asset managers are therefore well advised, whatever it takes, to put their own digital strategy to work to capture tomorrow’s market share. Technologically, you too need to be racing toward the future.
