Careful what you wish for in the era of mega platforms ______

Blog / 13 Nov 2017

Sarah Hayward, Managing Director - Head of Australia and New Zealand

A big question for the global funds management industry is will or won’t Google enter funds management? Or indeed when?

To date, regulation that has caused considerable angst and operational cost and focus for funds across the globe has acted as a protective moat to funds, heading off potential disruption by technology companies such as Google and Amazon that have no shortage of opportunities to pursue in less burdensome sectors.

We can’t assume it will stay that way. Any company that has the capability to gather and understand quality data about its customers has the potential to be a distributor, yet arguably not on the same scale as these global machine learning powered mega platforms.

Research undertaken by Calastone Australia found technology giants such as Google and Microsoft are considered to be the biggest threat to funds management business models, with 26 per cent of respondents across the global investment management sector citing them as having the most potential to disrupt, followed by new entrants to the market (23 per cent) and online retailers such as Amazon and Alibaba (19 per cent).

These companies are artificial intelligence empowered data mines, storing extensive personal information about their customers’ likes, dislikes and spending preferences to tailor their offerings and stay ahead of the curve. Incidentally, it’s exactly the type of information you need to distribute financial services products effectively.

There are already examples of this happening, one of the most successful attempts being Alibaba’s money-market fund, Yu’E Bao, which is distributing via the giant’s mobile-payment platform Alipay. In four short years the fund has reportedly emerged as the world’s largest with $US211 billion in assets and some 370 million account holders.

As technology accelerates, distribution models like this are expected to become the industry standard. Our research found 36 per cent of Australian-based respondents predict direct-to-consumer models will be the most important distribution channel in ten years’ time, compared with 22 per cent citing platforms.

It is well possible that this inflection point may come sooner than later, shaking up views of Australian industry participants who currently consider platforms as the most important (38 per cent), followed by independent financial advisers (24 per cent), banks (20 per cent) and direct-to-consumer (16 per cent).

Attitudes to robo advice are also indicative of a slow-moving mind-set. Of the Australian respondents, only 26 per cent agreed that robo advisers would become the main distribution channel for retail asset raising while 44 per cent disagreed. This was a far cooler response than the global collective of 39 per cent who agreed, against 31 per cent who disagreed.

Fund managers in particular must embrace technology and its many potential uses to reimagine their business models. They must think like a disruptor. A fund manager’s ability to innovate successfully will depend on it having the right people and expertise to ensure technology is embodied within the organisational culture and business strategy.

As technology leaders of the world demonstrate, technology is most powerful to those who understand best how to apply it – particularly around enriching their distribution with an understanding of client data. Here Australian respondents also revealed vulnerability, with over half (52 per cent) citing “lack of internal expertise” as the main issue they face in this regard, while 35 per cent said a “lack of appropriate technology”. A third cited a “lack of access” which was globally cited as the greatest issue.

Complacency is the key to disruption that is accelerated by consumer demand for solutions that make life simpler. Embedding technologists within executive leadership should encourage greater diversity of thinking and enable firms to create modern distribution solutions investors will use. Only then can fund managers start successfully challenging the status quo to become the change leaders the industry needs to protect itself from outside disruption.

Sarah Hayward, Managing Director - Head of Australia and New Zealand

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