To survive, asset managers need to embrace disruptive technologies
FROM THE OUTSIDE, asset management looks like an exciting industry that’s immune to technology — but that’s not true.
Changes in regulations, rising customer expectations, and the growing pressure from new-age competitors are forcing the asset management industry to explore disruptive technologies in order to stay in business.
According to a new study by the Investment Company Institute (ICI), the asset management industry is at a critical juncture in its history — investing in innovation and reinvigorating their products and processes.
In fact, while front-office transformations remain slow, operations executives are aggressively transforming their operating models to achieve greater agility and cost-effectiveness, as they take on the challenges of supporting more complex products and services.
The study revealed that 64 percent of firms surveyed for the report have completed a major operating model change in the past three years to improve operational efficiencies.
Asset managers, many of whom are uncertain about the ability of their operations and technology to support the firm’s objectives, believe they need to alter their strategies at the front-end to focus on driving distribution and creating differentiated products.
“Doing this effectively requires embracing technology and innovation, including investment platform technology and artificial intelligence, for better investment decision-making,” said Accenture Senior MD Michael Spellacy — whose firm collaborated with ICI to create the report.
The study shows that 55 percent of asset management firms reported having a formal initiative in place to evaluate the business and operational potential of new technologies such as the cloud and APIs.
Asset managers join the fintech ecosystem
Given the rapid pace of development in the world of technology, asset managers are also evaluating partnerships with the fintech ecosystem and exploring collaborations with start-ups, accelerators, and incubators.
The study also reveals that middle office functions—including collateral management, data management, derivatives processing, and transaction management—will be the biggest beneficiaries of fintech partnerships.
In the back office, the report found that respondents expect that fintech firms will be able to quickly and successfully help transform expense management, fund accounting, and financial reporting.
Approximately one-third of the firms agreed that at-scale middle office fintech partnerships were common across the industry, suggesting that these partnerships are already delivering results.
According to analysts, however, in order to ensure the success of a fintech partnership, asset managers need to adopt a laser-like focus on delivering bottom-line impact.
“It is vital to avoid the initial focus on ‘shiny objects’ that can result in proofs of concept that lack a clear vision of eventual production and outcomes,” the report pointed out.
Transformation key to long-term success
Technology adoption in the asset management industry isn’t exactly driven by consumer demand for better experiences — but stakeholders do expect more transparency, accountability, and control over their monies.
Further, with margin pressures making profitability difficult, using disruptive technologies might provide new revenue opportunities to asset managers through smarter and more intelligent product and service portfolios.
The survey conducted by ICI suggests that decision-makers in the industry are aware of the changing landscape and are taking action.
“Asset managers are disrupting their legacy operating models and skillsets to reequip their firms to win in a disrupted future.
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“Executing this transformation successfully is imperative for long-term success,” concluded the report.
Many asset managers have shifted their strategic focus to the front office and clients and are looking at accelerating their journey to technology in order to boost operational capabilities and acquire/develop top talent in order to support the evolving needs of the front office.
In the near future, partnerships with the fintech ecosystem and customer-driven technology projects are expected to drive the asset management industry into a new space — where digital is weaved into the very fabric of the organization.