Technology has been a common component of every successful business response to the pandemic. In the funds sector, technology kept customers informed, kept traders trading and kept data flowing, despite the disruptions caused by extreme market volatility and an unplanned shift to remote working. In short, it kept the show on the road.
If 2020 brought home the extent of our current reliance on technology, it also showed us a glimpse of the future. It underlined the importance of data to delivering to a diverse and demanding client base whose investing expectations are heightened by their personal retail experience. It also highlighted the value of harnessing the full range of digital technologies to construct scalable, flexible, resilient and responsive solutions.
These new realities informed the perspectives shared by industry experts throughout our virtual Connect Forum. Across two days of presentations and panel discussions, we collectively explored the drivers of change in the funds industry, with the influence of technology never far from the surface. For us at Calastone, the event reflected a recognition that technology innovation is central to reducing friction and delivering value in an increasingly competitive landscape.
In ‘Brave New Digital World’, panellists noted the pace of change fuelled by technology during the pandemic, and an increasingly data-driven responsiveness to customer need, both institutional and individual. The genie is out the bottle, we heard. We’ve seen what we can achieve, when we really need to, so let’s go further, faster.
“The pandemic has been the biggest accelerant in our lifetime for technology change. Things have been achieved in weeks that would have taken years. Conventional wisdom on things like product adoption are all in the bin,” said Dave Howard, CTO of wealth management service provider Novia Financial.
Across markets, the focus is on using data and technology to democratize or individualise the client experience, putting power in the hands of the end-user. Streamlining dataflows across a complex value chain is vital, but this year proved we don’t need to rip out mainframes and embark on multi-year implementations to leverage digital technologies and transform the customer experience.
Judith Swan, director of financial services, Microsoft UK, noted the potential for digital process automation as an agent for progress, without dedicating substantial resources to large, complex projects.
The greater levels of integration that can be achieved via APIs and cloud computing, for example, is allowing individuals to simplify processes quickly without significant coding expertise and at low costs, responding to business need. “We’re seeing the rise of the citizen developer,” said Swan, noting the growing capacity for business and end-users to analyse and customize data sources and dashboards.
In the wealth management space, the pandemic has accelerated efforts to build engaged digital relationships between investors, advisors and managers, using real-time information to create a personalized, holistic view of the client’s financial circumstances and choices. Innovative, integrated platforms are perhaps most evident in Asia, but their influence is now global.
“Historically, platforms have been built around function. We’re now trying to design them around journeys,” said Howard. “We’re trying to provide journeys for the end-investor and the advisor that are much wider than platform functionality.”
To date, integration barriers between legacy systems, platforms and counterparties have resulted in errors, inefficiency and manually-supported workflows. Add in the costs and delays associated with major system upgrades and you have a user experience far removed from that now delivered by microservice-based architectures which can deploy multiple updates per day.
As Howard observed, digital technologies are enabling a leap forward from management information to business intelligence, bringing new insights to the user. But rather than being replaced, incumbent platforms can be supplemented with powerful, light-touch app-based analytics.
“We’re providing investors and advisors with dynamic dashboards instead of static reports. Getting an investor to engage with their investments is first prize from an advisor’s point of view,” said Howard.
While technology is the enabler, regulatory developments in many markets are also nudging financial service providers to deliver a more comprehensive, up-to-date, and intuitive picture of customer finances.
Taking different shape and pace across jurisdictions, open banking initiatives are breaking down the data silos built up by service providers over the years. Having made it easier to switch bank accounts and share transaction information via open APIs, open banking is now helping end-users to view and manage their investments alongside other sources of wealth or financial commitments.
These changes are finding their echo in the institutional space, where custodians such as BNY Mellon are integrating their data with other sources held by customers in real time, and moving legacy systems to API-based architectures.
According to Bhargavi Sunkara, head of asset servicing technology, BNY Mellon India, the focus is on simplifying the end-user experience, and not always using the latest technology. One example is flexible warehousing, which enables the user to derive new insights by combining a wide range of data assets, without having to specify data models up front.
The bank, like many service providers, is also looking further ahead, alert to new innovations that overcome legacy barriers, reduce friction and increase self-service. Once fully harnessed, artificial intelligence (AI) will support further choice and customization by making new connections between data sets. “We have only started leveraging AI, we haven’t really gone into fully fledged usage. Combined with personalization of data, that is going to be a game changer,” said Sunkara.
Automating and simplifying business processes was a dominant theme of 2020, leading firms to innovate to overcome the limitations of legacy platforms. But providing personalized insights through data has much further to go, as AI use cases multiple and mature.
Although individual technologies are often hailed as transformative breakthroughs, practical realities must be confronted. There are challenges migrating processes from legacy systems to solutions based on distributed ledger technology, for example, while transparency and ethical issues around AI are yet to be fully resolved.
In the latter case, human oversight and intervention will be needed until confidence and understanding develops further. In some areas, the combination of human empathy and artificial intelligence may be a strong and necessary combination for a long time to come.
As reflected in a recent study of investment behaviours conducted by Calastone, demand for in-person interaction persists across markets and generations, both for checking in on investment performance and – even more strongly – when seeking investment advice. More than four in ten (43%) of all active investors prefer to discuss investments in person, our survey found.
“There’s a need to connect emotionally and ask: fundamentally what are your goals? But AI/ML can have a massive impact on identifying the amount you need to live an active retirement, based on data about an investor’s health, activity levels and wider financial situation,” observed Howard.
Throughout the two days of the virtual Connect Forum, it was apparent that the pace of technology innovation is only matched by the range and diversity of customer expectations. Against a backdrop of intensifying competition, the challenge for funds providers is ensure their business models and technology stacks are sufficiently streamlined and flexible to handle the unexpected, from technology and customers.
To this end, we are looking to support our customers through the development of DMI Fund Services, a digital ecosystem that not only provides a network-based approach to fund administration and issuance, but also has the capacity to offer this approach much further along the value chain.
At its heart, the DMI concept is driven by a belief that digital technology innovation can eliminate the friction caused by linear dataflows across a fragmented value chain. Our aim is to bring the power of the network to bear first in fund administration functions, but also beyond to a wider range of core processes for asset managers and fund distributors. Benefits to providers and customers will range from real-time NAV to new models for collective investments through tokenization.
Critical to this vision is the insight we all gained during the pandemic: new efficiencies can be achieved both quickly and incrementally through a deep industry knowledge and an understanding of the opportunities of digital technologies. Credible, flexible pathways that take account of fast-changing realities can be better at supporting innovation and delivering data-driven customer value than wholesale revolution.