What Data Can Do For Asset Managers

The asset management industry has been around for a long time, and it’s not going anywhere. Having said that, the industry is changing rapidly.

Indeed, the challenges facing asset managers are legion. Fee erosion, fast-evolving customer expectations, regulatory change and technological transformation are big, hairy, audacious problems that firms must tame – and technology has a pivotal role to play in that endeavour.

Fee erosion is real

Not only do they have to contend with the rise of passive funds and the ethical minefield that is ESG, the asset management industry is also feeling the pinch from fee erosion.

Expenses have been growing in lockstep with revenues, highlighting the difficulties in achieving scale. At the same time, firms are experiencing shrinking fee rates and product rationalisation. As markets have become cheaper to access via innovative index-linked products, it’s become harder for managers to justify traditional fee structures. This is particularly true when a rising tide in markets means that passive is outperforming active management.

Investors’ expectations have fundamentally changed, and the asset management industry is scrambling to catch up. And this is happening within the context of a low growth environment and global political and economic turbulence, which makes it harder to plan for the future.

From products to solutions

Of course, there are opportunities too. A huge wealth transfer from baby boomers to their offspring means that a new breed of customers is looking for help in managing their wealth and driving returns. This presents unique challenges, with the onus on creating customer experiences that resonate with different segments.

Baby boomers, Millennials, Gen X’ers, individuals and families have different expectations and ways of interacting with financial services. There is an increasing need to become less product-driven and more focused on solutions. In other words, firms need to become more customer-centric and get better at personalisation. And this means that data is more important than ever.

Regulatory evolution

To add further complexity into the mix, regulatory change continues apace, creating challenges for firms who must strike a balance between growth and compliance. Again, data is a key part of solving this puzzle. As Deloitte recently pointed out:

“Data remains a key focus, with regulators requesting additional data and constantly raising the bar on data quality and integrity. Also, there continues to be a heavy focus on a firm’s ability to operationalize core risk management frameworks, principles, and requirements within its operating model and culture.”

But data is double-edged. Handled correctly, it can supercharge growth by making firms more agile, proactive and compliant. But if firms fail to implement effective data management, it can also present massive risks, both financially and reputationally.

Disruption

Much has been written about the challenge presented by technological disruption.

After a wave of hype and scaremongering around disintermediation, automation and mass redundancies, we are now seeing new technologies like Cloud-based Computing, Blockchain, and Artificial Intelligence find meaningful use cases within asset management. Talk of “disruption” by challengers has gradually been replaced by a focus on collaboration, in-sourcing innovation and future-proofing.

The very technologies that threatened to destroy the incumbent asset management industry are maturing into viable commercial strategies that complement humans and enable them to focus on high-value tasks that cannot be automated. Not all firms have been proactive about embracing innovation. Large swathes of the asset management industry have taken a “wait and see” approach, which means they risk being left behind.

A call to arms

Clearly, the asset management industry faces significant challenges. Firms must re-imagine their internal practices and external relationships with customers. This is extremely difficult to do in practice, particularly for large firms that lack the agility of digitally native challengers.

A bunker mentality isn’t going to help. Neither is a strategy that is big on talk but small on action. As change accelerates, the firms who sit on the sidelines waiting for competitors to carve a path through the storm risk more than falling behind – they risk oblivion.

Focus on quick wins

Embracing data has never been more important. But where to start?

While there aren’t easy wins, there are quick ones that can reshape the asset management industry and put it on firm footing for the future.

• Data foundations – Data foundations are key to reshaping organisations and creating a launchpad for new business models and practices. By getting the fundamentals in place, firms can unlock new perspectives on the industry.

• Changing investor appetites and demographics – The Accenture-Orbium Wealth Management C-Level Survey 2020 noted that 34% AUM ($1.5trn p.a.) is expected to be lost as a result of the new generation’s shifting ethical and personal values. This doesn’t need to happen, but it will if asset managers don’t take action on ESG. Cleaning up messy data on alternatives and ESG investments will allow for fresh insights. Massive investor appetite in this area requires a commensurate response from asset managers.

• Human experiences – The great paradox of technology is that it can offer highly personalised experiences. But personalisation is impossible to achieve without a comprehensive approach to data management. Asset management firms can learn much from companies that have built their brands around personalisation. Becoming “The Netflix of asset management” might sound a little far-fetched, but by studying superlative user experiences of brands like Netflix, Amazon and Spotify, a new vision of asset management can emerge.

A posititive vision

Despite the challenges facing asset management – and indeed the wider financial services industry – it’s a hugely exciting time. Nothing survives by standing still, and firms must evolve in order to remain relevant to future generations.

Unlocking value from data isn’t going to happen overnight. But an open mind, a positive outlook, and a willingness to engage with new ways of doing business will go a long way.