Since publication of Asset Management 2020 in 2014, profit margins have been squeezed. Notably, the greater transparency in the wealth management advice model started by the UK’s Retail Distribution Review (RDR) and similar regulations such as MiFID II, a shift to outcome-based solutions and the expanding market share of passive strategies are putting relentless downward pressure on fee levels and asset flows, which are skewed towards lower margin products. This is happening at a time when firms must invest in building outcome-based solutions and applying transformational technologies, both internally and externally.
In the AWM section of PwC’s 2017 CEO Survey, 65 per cent of CEOs foresaw technology reshaping or significantly impacting competition. Yet even this majority seemed to understate the potential impact, with 77 per cent of CEOs across financial services as a whole anticipating this happening. AWM CEOs’ views about technology beg the question: is the sector preparing fast enough? Personally, and commercially, they appear less acquainted with new technologies than their peers in other sectors. So far, these technologies have disrupted AWM less than banking, for example. But will technology now start to disrupt AWM?
The transformative opportunity provided by digital approaches and technologies is at the forefront of business and extracting value from new and existing technology should be part of every asset and wealth manager’s mandate. By employing digital technologies across their organisation and by incorporating big data techniques into decision-making, asset and wealth managers can minimise the cost of their low value activities and maximize the impact of their high value activities to gain a competitive advantage.
Emerging digital technologies - such as social media, mobile Apps, the internet of things, even weather pattern data or geo location data - provide new data points. These can be collected by investment professionals to enable data-driven investment decisions. Hedge fund Firm CargoMetrics, for example, uses global shipping data to monitor were ships dock to gauge their type and size of cargo. The data is used to trade commodities, currencies and stocks via automated algorithms (1). By connecting these new data points to each other or to existing fundamental analysis, valuable insights can be generated, including risk and potential reward throughout the investment decision process. The visualisation of these insights and connections can provide investment professionals with the opportunity to improve their existing analysis, facilitate better decision making, proactively manage risk and, therefore, optimise their investments.
To maximise the impact of digital technology and enable the operational flexibility required for future innovation, firms operating in AWM must focus on:
• Integration of all systems to create a data fabric for real-time data sharing and reduction of reconciliations. Integrated RPAs are reducing repeatable, logic driven work such as reconciliations and other such regulatory work.
• Measurement along this data fabric to monetize data throughout the trading lifecycle - understanding and reducing costs per trade. BNY Mellon’s big data platform, for example, (Digital Pulse), aims to capture every event that takes place within the bank in each business, process or client. It tracks activities, process and transactions within BNY Mellon resulting in predictive analytics (2).
However, as we see it, many AWM firms are currently focusing much of their technology attention on the short-term. We understand this: on any given day, there are fires to fight, with regulatory fixes, fraud attempts, cyber attacks, budget discussions and so on.
But they are often looking at them reactively, in silos, without coordination. In other cases we see AWM firms which are hesitant to ‘bite the bullet’ on technology projects, believing that they can limp along with older systems for another year or two until technology stabilises and funding becomes available. Unfortunately, we think that this strategy will become ever more risky as time passes.