The City is undergoing rapid digital change and developments in technology are reshaping the way we interact with financial services firms. However, conservatism and traditional practices are still the order of the day for many asset managers, striking a contrast with other financial services sectors which have been far faster in adapting to a tech-driven world.
Asset managers are now beginning to recognise the benefits of becoming ‘digital first’. The firms which have taken steps towards utilising technology are seeing significant competitive advantages: digitally advanced advisors are managing 42 per cent more assets than their analogue counterparts and experiencing greater levels of profitability. Companies like Vanguard have pioneered digital approaches and are now managing $4trn in low cost simple funds, taking 54 per cent of inflows into mutual funds and ETFs.
Similarly, the likes of UBS, BlackRock and BNP Paribas are investing in digital capabilities and bringing new offerings to market. Progress across the industry for the most part however remains sluggish. Less than a third of asset and wealth managers have developed robo-advice offerings, and only 6% have adopted Blockchain technology.
The challenge can be seen in areas such as the expensive and time-consuming nature of updating entire operating systems. The internal blockers can be many, from debates over architecture, legacy estate or resources, to what functions to keep in house and what to outsource, to which service providers deliver the best value for money.
The biggest challenge to digital transformation often revolves around people and a company’s culture rather than the availability of technology. The task of harnessing new skills and investing in new talent is often cited as a major obstacle, with the result that asset managers can find themselves facing internal scepticism that things need to change.
Nonetheless, there is no doubt that those firms which fail to join the digital revolution will struggle to remain competitive. So, what are the key lessons which asset managers can use to accelerate their digital transformation?
Place your focus on the client and customer experience
Asset managers must pre-empt the kind of service future clients will demand. Current estimates indicate that millennials are set to inherit some $15 trillion from parents and grandparents in the US and $12trn in Europe. This tech savvy group will naturally gravitate towards highly digital businesses and fund houses must anticipate this shift towards digital channels to attract and retain clients. Shifting the focus from product to client will help drive additional revenue opportunities, protect market share and lead to improved levels of loyalty.
Have clarity about where competitive threats will come from
New players in the market may initially gain column inches, but many new products will fail to make a dent in the market share relative to larger incumbents. Robo-advisers, for example, have had a major impact on investors but have not transformed the market in the way some expected they would. Robos currently have around $224bn assets under management which is only a small percentage of the total AUM in the market. Firms should keep an eye on the incumbents who have the customers, brand and available capital to disrupt the market.
Get into market quickly
Multi year, expensive “build it and they will come” transformation programmes are becoming a thing of the past. Modern approaches embrace the concepts of agile working where a vision is defined but the path to get there is iterative. In this case, speed to market is key and capability is then scaled up in response to the success of the intitiative. Firms should assess how this approach can be deployed in their business.
Don’t be afraid to introduce and embed new ways of working
It is not enough to design a new client experience and not shift the culture and capabilities of your organisation to make it sustainable. Asset managers looking to undergo a digital change should strive to be a responsive organisation where continuous delivery is the norm, working in cross functional teams rather than in siloed divisions & departments. A new, digital purpose should be articulated in a way that is understandable to colleagues, clients, end customers and partners.
Understand the value of data
Data will be a key ingredient in any firm’s digital success and will be vital to creating personalised experiences and enabling clients to manage their business more effectively. Understanding the value of data, how it is organised within a firm and the way it is managed through digital channels will be a source of competitive advantage. At the same time, asset managers must be aware of the risk involved in migrating to digital channels and the responsibilities in collecting, storing and using sensitive data.