Chalk Talk: Disruption offers opportunity for fund houses
Amid some compulsive, sports-related television viewing I came upon a first – adverts for fridges equipped with blockchain. The claim is the technology can manage your home consumption and expenditure seamlessly allowing you to talk to your devices and have them talk to each other, along with other cool things.
We know the retail, transport and consumer durables sectors are being disrupted, and many would say more for better than worse. Does the investment industry also have an ‘Uber moment’ on the way, offering simplicity, speed, scale and synergy advantages after which nothing is the same?
Asset management is one of the last industries to be disrupted. That is because it depends so heavily on regulation, complexity and long-term experiences. It does not lend itself easily to the worldwide wish for simple and speedy services that is leading most disruption.
But the Uber moment is, nonetheless, coming to asset management sometime soon.
As with other industries, new technology in investment covers a spectrum: big data and AI applied to predictive and prescriptive analytics; cloud computing for improved flexibility and security; and the Internet of Things connecting all facets and devices of our personal lives including our financial lives.
The Uber moment is coming to asset management sometime soon
This technology will support greater transparency of value, better utilisation of assets and lower costs. And it can deliver to investment clients – particularly in defined contribution pensions and retail investing – improvements in usability that are long overdue. These areas seem likely to produce the Uber moment.
THE RESPONSES
How can investment firms best position themselves through these turbulent times? This question is addressed in Investment Firm of the Future, a study I co-authored for the CFA Institute.
In it, we discuss the disruptive implications of unprecedented monetary and investment conditions, set against a back-drop of social and technology-driven change. It explains how firms will face trouble unless they proactively defuse disruptive threats and embrace disruptive opportunities.
Investment firms will need to adapt in a number of areas:
1. Greatly improve understanding of client needs and wants through a customer data-driven process, in which systematic data gathering, customised algorithms and Amazon-type recommendation engines play a big part
2. Improving communication, particularly in exploring risk as a unique client feeling
3. A person plus technology delivered experience – combining AI processes with skilled human engagement to build maximum competency and trust
The acid test of successfully making these shifts is to build sustainable trust with clients. This can be reinforced through a strong and authentic brand.
Can technology companies challenge traditional investment firms on their home turf? Unclear. Technology brands work well with the tangible and the immediate; they don’t translate so well into slowly emerging outcomes in asset management contexts. This may explain the reluctance of technology titans to step into asset management.
The CFA research sets out six attributes needed for investment firm success:
1. Strong culture. End investors crave a culture of professionalism in which commitment to competency and client loyalty are critical values
2. Technology commitment. A commitment to the considerable time and money necessary to introduce better technology
3. Tech-savvy leaders. This is a very human craft and T-shaped people – well-qualified all-rounders – are particularly suited
4. Well-positioned business models. Firms need to align themselves to benefit from the new asset management trends, particularly an expansion in investment solutions
5. Recognition of comparative advantage. They need to know what they are good at, and outsource or collaborate with partners where they aren’t
6. Dealing with change. This involves the ability to step away from legacy systems and thinking and rejecting the natural temptation to deny the issues.
This new world favours large investment firms – but also smaller firms with agility and focus. Most of all it favours firms that have a vision, strategy and culture ready for the new terrain they will be traversing.
Click here to read the full report.
Roger Urwin is the global head of investment content at the Thinking Ahead Institute, a division of Willis Towers Watson.
This article will appear in AsianInvestor's Winter 2019 edition, which is due out in the coming days.