Radical changes in society, industry and trade have reset the way in which individuals and businesses conduct themselves. The asset management industry is not immune to these global shifts and today many asset managers across Europe are seeking to redefine their core business models in the face of:
- A significant increase in the number of people needing stable and reliable retirement income
- Rapid change in how individuals evaluate and access financial services
- Historically low interest rates and squeezed profit margins just as investors are becoming more demanding in their search for steady returns
- A re-purposing of resources away from servicing wealthy baby boomers towards engaging with a new generation of cash-starved millennials with little concept of delayed gratification.
At the same time, the industry is facing unprecedented challenges, as the disruptive force of the internet and related technologies grows exponentially. Perhaps the most significant challenge for asset managers is the requirement to adapt to their target market’s consumption of financial services via personal technology.
There hasn’t yet been a profound technological shift in wealth management, but now many financial institutions are starting to question the viability of their future existence. The new generation of investors are questioning the traditional intermediary and considering newer direct channels and technology platforms such as robo-advisers.
Meeting the investment needs of these investors – and doing so profitably – is no small challenge for asset managers. Some are rising to the challenge, realising that amid the chaos of change there is an opportunity to engage with the end investors in a radically different way. These managers are collaborating with FinTech companies, looking for new ways to drive profitability via products and services that are low cost and easy to understand for a generation who earn less, and are less well-educated about finance than their parents, but who are used to running their lives via apps.
A key opportunity for traditional asset managers is discovering the latest buying patterns. How has the ‘herd mentality’ evolved? How do continually connected and ‘social’ investors discover investment ideas? Whose guidance, if any, do they trust? How do they execute an initial transaction and monitor and refine their portfolios on an ongoing basis?
Traditionally, asset managers have manufactured and managed investment products such as unit trusts, which have been marketed to consumers by banks, IFAs and insurance companies. As people choose to consume financial services via their personal devices, they come to expect speed and simplicity in all their transactions. Today, it is normal to spend seconds to ‘tap and go’ at the supermarket, and complex mortgage applications can be completed within 30 minutes. Those seeking to invest will flock to the platform with the best technology.
Many asset managers are not structured to provide the necessary consumer experience in an efficient and profitable manner. We will most likely see successful asset managers collaborating with the new platform offerings to more effectively engage with the end investor, which is a definite reversal of the trend that we have seen over the last decade where asset managers have become increasingly disintermediated from the end client.
The unfolding FinTech landscape
This increased collaboration between asset managers and FinTech firms derives naturally from their own separate priorities. Asset managers need to move beyond traditional distribution channels, and have struggled to achieve scale in an environment which has been littered with mis-selling scandals. FinTechs are a new start, aligning themselves with modern customer behaviour while providing the necessary low cost enablement.
Regulation in the European market is concerned with improving trust, engagement, choice, transparency, value and outcome for consumers. Asset managers can use consumer regulation and new technology competitively, as the market deepens its focus on bringing down cost and ensuring consumers have access to engaging, individually tailored, long-term goal-orientated, savings and investment solutions.
When will a truly global giant such as Amazon or Google decide the time is right to flex its tech muscles in the investment space? Will there be an ‘Uberisation’ of the savings and investment space, where previously underutilised asset management products will be subsequently adopted in the mass market?
The digital distribution supply chain available to established asset managers means that they can view the rapid changes brought about by FinTech companies as opportunities to be embraced.
As an industry enabler, Calastone is already helping industry players deploy powerful data tools to better monitor and understand their global distribution activities in real-time, and to adapt to emerging regulatory requirements.
Successful asset managers will partner with the right technology companies who themselves are driving the direction of the industry by understanding early trends and inspiring innovative solutions to engage with a new generation of investors.