Technological challenges and opportunities facing Asset Management

OPINION / 29th August 2018

The Asset Management industry is facing several technology challenges, which not only threaten working practices and industry regulation, but also impact audience demographics.

Fears surrounding the rise of Robo Advice and whether it will replace Asset Management jobs has been bubbling for several years. Web and app based robo advice platforms use algorithms to support functions – from account opening, to building asset allocations and understanding the investor’s risk tolerance. They can also create low-cost investment portfolios, which historically a Financial Advisor might do for a private investor. Whilst most Asset Managers focus is on direct intermediary and institutional sales, robo advice supports the trend towards disintermediation, which potentially threatens Asset Managers’ distribution channels.

With these challenges in mind some Asset Managers are realising that it’s important not to leave all the Private Investor “heavy lifting” to advisors and wealth managers. To remain relevant to the digitally savvy High Net Worth (HNWs) investors of tomorrow, they need to show their products and strategies match this audience’s needs and concerns.

Pictet Asset Management was quick to spot this trend when it launched its thought-leader content site, called Mega, several years ago. The platform has been designed to provide insights and thought leadership to potential investors – highlighting the challenges they face and the solutions that are available.

Stephen Gunkel, Pictet’s Head of Marketing & Communications, who spoke at an event we hosted last year, said the platform had been designed to attract new audiences including the millennials and existing client base who were no longer looking at its corporate website or reading its existing investment insights.

However, new technology also provides Asset Managers with an opportunity to open their services up to new investors. In Asia, and in particular China, the wider wealth management industry has grown significantly over the last few years on the back of technology adoption.

The average Chinese investor is increasingly using mobile to interact with banks and wealth management companies. Access to information about funds, products, yields and different ways to invest is now available on the internet, with WeChat being used to disseminate information.

Robo-advisor technology has attracted a new breed of investor in China. Chinese consumers, who reportedly place a lot of trust in internet services and are not sceptical of using remote services, have been using digital payment solutions like Alibaba’s Ali Pay (the Paypal equivalent) to invest in new digital money market funds, which is dominated by the Group’s Ant Financial.

Small investors can put aside small sums of money into these money market funds, via digital channels and payment methods, without having to engage a broker or intermediary. They have rapidly become some of the largest funds in the world.

These funds, which are very low cost to use, provide a direct way for small-time and first-time investors to become more confident users of financial services, opening up the industry to a new breed of investors, who have traditionally been ignored or priced out of the market.

China has gone from cash to digital payments, skipping the credit card and personal cheques industry altogether. From an investment point of view its gone from savings accounts to digital wealth management. Whilst Financial Advisors do exist, they oversee the more complex and risky investments that are difficult to explain on self-service platforms.

HNWs are also using robo-tech to invest. Traditionally we think of HNWs wanting personal advice, and small investors using self-service. But interestingly, evidence suggests that HNWs are much more comfortable using a digital interface like small investors, most likely due to increased exposure to technology in their everyday lives.

As digital adoption becomes commonplace, funds are accepting large investments online with no human in between, and millions of US dollars are being put into products that can be used with a click of a button. This is something the industry thought would never happen, but investors’ trust and faith in digital technology is growing.

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Traditionally, Asset Managers have paid lip-service to the needs of Private Investors, as they are costly and time-consuming to manage and their individual assets under management are small. They provide the fund and investment information where relevant and let mass distribution networks or IFA’s do the education and marketing. However, what many organisations don’t recognise is that the wealthiest investors of tomorrow have an appetite for digital enabled service and will prioritise those who offer it. With only 23% of +$10m able to recommend their current wealth manager and 47% of HNW’s under 45 interested in exploring robo-services, there’s never been a more suitable time for Asset Managers to provide better digital research and transactional capabilities, to ensure their funds are front and centre in this time of digital disruption.