Financial technology, or fintech, has become a buzzword for the global asset management industry over the past few years.
Several asset managers and industry service providers have been enamoured by the impact these technologies can potentially have on various parts of the industry value chain, and in the process, benefit investors.
From using algorithms to construct portfolios and experimenting with artificial intelligence to using digital platforms for fund distribution and harnessing blockchain technology for transaction processing, the consensus view is that fintech is just getting started.
So much is still work in progress: for instance, while current technologies such as AI-driven robo funds remain relatively unsophisticated and account for only a small percentage of overall Asia-Pacific assets under management, the technology behind such funds has the potential to not only impact the way investors approach their investments, but also upend entire business and operating models as well.
We asked a wealth manager, two investment consultants, a digital fund distributor, and a blockchain consultant for their take on what fintech developments will have the biggest impact on fund investors -- and the industry -- over the next decade.
Bob Collie, head of research, Thinking Ahead Group (London)
Willis Towers Watson
The disruptive impact of fintech developments on asset management has barely started. The growth of artificial intelligence, with its implications for analytics and the handling of data, is perhaps the most obvious area of pressure. But it’s by no means the only one.
These developments won’t just change the investment model, they will also impact business models, operating models and people models. Decision making will increasingly be about the power of people plus machines (this is not an either/or choice) and the skills we look for in investment professionals will change.
Some investment roles will disappear, but new roles may come into existence, and others will change. The investment professional of tomorrow needs to be T-shaped, with broad general knowledge as well as domain-specific depth.
While individuals will need be comfortable with new technologies, they will also need to be strong team players, with situational fluency and emotional intelligence. Teams will need to become more agile.
These changes will affect how firms add value for, and interact with their clients and with their employees too. The industry structure is likely to continue to evolve in the next five to ten years, driven not only by technological change but also by associated global trends in economics, demography and the environment.
Sundeep Gantori, equity analyst, chief investment office (Singapore)
UBS Global Wealth Management
We believe artificial intelligence (AI) will have a long-lasting impact within the fintech industry over the next decade. In both the consumer and institutional segments, the low-hanging fruit for AI within financial services is to leverage virtual assistants, chatbots or speech recognition software for regular customer interactions, thereby lowering the dependence on traditional banking channels like branches or relationship managers.
Additionally, in the institutional investing space, AI should provide a major boost in risk management, which is traditionally an area of challenge, as AI can help manage credit-risk assessments simulations around strategic asset allocations.
In the longer term, as robo-advisers become more sophisticated, institutions can further utilise the technology in product marketing and aftersales.
Insurance is another area within financial services where AI can have a long-lasting impact. AI, through deep learning, can elevate the region’s insurance industry through better products and pricing, underwriting, target marketing and sales, claims management, and overall data mining.
According to a survey by UBS Evidence Lab on 144 banks, managements invest in AI primarily to “improve customer experience/ engagement” (21% of respondents). Cost savings were the second objective (11% of respondents), followed by cross-selling, financial advisory and customer intelligence (9% for all three objectives).
Ray Chou, partner for financial services (Shanghai)
One growing area is big data and advanced analytics. Historically, a lot of the growth in the assets under management, especially in China, was basically driven by the capacity of the sales force under the "push model”. However, when the market becomes more mature or sophisticated, it will be critical to drive a customer-centric approach under the "pull model", which means learning everything about the investors’ origination of their wealth management demand, investment objectives and behavior, values and preferences, etc.
Only with those kinds of customer insights will you be able to deepen and sustain the relationship more effectively. And only if you can really understand the availability and predictability of the data, while actively creating the use cases for advanced analytics, will you be able to realise the impact of your proprietary customer insights.
We're seeing some financial institutions starting to establish and develop new “customer” roles that actually hold the accountability around the use of both internal and external data, and also upgrading customer experiences and frontline capabilities via such advanced analytic infrastructure. This is an important development in the next three to five years for market players to create new competitive advantages.
Andrew Gordon, head of Asia (Hong Kong)
RBC Investor & Treasury Services
At RBC, we’re very excited by the enormous value that data offers investors. New technology is changing what the industry can deliver and– more importantly - the needs and expectations of investors. Investors want to be serviced faster, more accurately, with transparency and with suitable privacy. They want more choice but better quality.
Asset managers competing for business will need to balance these conflicting priorities and investors will look to trusted partners to help them through this. Partners will be banks and securities servicers, as well as fintech companies.
We view artificial intelligence (AI) as one of the most transformational technologies impacting business today, enabling the analysis of the massive volumes of data then applying it in a meaningful way. We’re developing new tools and collecting interesting data – but we’re also looking to collaborate with universities and fintechs firms which have their own areas of specialization.
By doing this investors can generate new insights and better decision making. RBC is already using AI to analyse underlying patterns in complex market environments and enhancing client security through biometrics and fraud detection algorithms. One of the exciting things about being in the industry today is that there are many new, innovative models – one size will not fit all.
Leo Chen, head of Asia (Hong Kong)
We believe that distributed ledger technology (DLT), when it is applied across the whole funds market, has the potential to transform the global and Asian funds industry.
DLT provides a means of revising the operating models of the funds industry to address the operational inefficiencies in today’s market. For example, the current fund distribution chain is susceptible to errors, full of friction, and in need of regular reconciliation. Industry participants tend to have individual interpretations of a transaction, communicate in different messaging formats and reference multiple copies.
DLT creates a standardised and mutualised digital distribution chain, where all participants can agree on the data and the same outcome for a given process. With such technology, participants can avoid the duplication of balancing and settlement of each transaction. This will result in reduced costs, risks and operational pressure.
In addition, the application of DLT enables market participants to roll out new services, catering to the needs of the next generation of investors. For example, with DLT, asset managers have the option to launch “eShare” classes in a fund, which could be offered to the end investors at a lower price. An “eShare” class does not need to be reconciled and does not require a transfer agent to run the register. This cuts a significant cost base in fund issuance.
Carlos Salas, managing partner (Taipei)
The biggest development in fintech over the next ten years will be the application of blockchain technology to capital markets and the digitalisation of assets.
There are significant benefits for the adoption of blockchain technology and digital ownership of assets in the industry as it improves market efficiency, broadens investment options and automates compliance to protect investors. Also, the ability to fractionalise ownership is expected to unlock liquidity for assets that were previously considered illiquid.
ICOs have emerged as a cheaper and faster way to raise funds, but the lack of compliance and its speculative nature have prompted a search for regulatory clarity. A better understanding of blockchain application by regulators is enabling a new form of funding that marries the benefits of ICOs with the sale of regulated financial securities, namely security tokens. The shift to security tokens is a natural evolution towards a more stable digital assets market with clear rules under a regulatory framework, which subsequently brings cryptocurrency and institutional investors together.
The groundwork for building an ecosystem is happening right now as we speak. We estimate that most security token exchanges are 12 months away from being launched, with a couple expected to be launched in six months’ time. Meanwhile, Asia’s first regional security token exchange is set to be launched later this year.