Calastone Connect Forum: What can you do with €7 trillion of cash?

Asset managers have changed the way they talk to clients in order to remain relevant – but as a panel of experts told a technology conference, now they need to offer even more convenience.

Technology will enable investors to pay lower fees for investment products one day. Just not yet.

Right now, there is much “jockeying around” as competing firms, including new-entrant fintechs, fight for a piece of the fund value chain, according to Rose St Louis, head of strategic partnerships at Zurich.

During a distribution panel discussion at the Calastone Connect Forum in London – a technology conference that Funds Europe took part in – she said: “We are seeing more fintechs and insuretechs coming in and snatching at different parts of the value chain, whether it’s [to provide] consolidated reporting or cashflow modelling.

“By trying to make different parts of the value chain more efficient, I think ultimately that could be a bit more challenging for the adviser who is trying to wrap all that stuff together to deliver financial products, services and solutions.”
The process still needs time to distil, she added. Meanwhile, it is uncertain whether clients are seeing cost reductions yet as a direct result of technology.

St Louis joined the funds industry more than 20 years ago as a financial adviser. It seemed like it took “200 years” for a significant technological advance to happen, she said – and when it did, it was the emergence of fund platforms, which disrupted client servicing and the delivery of financial advice. But now that digital technology has gained traction, she observed, more disruption is occurring in just a fraction of the time.

“Scared to invest”
Edward Glyn, head of global markets at fund distribution network Calastone, asked the panel how asset managers and their distributors could prize €7 trillion of cash out of individuals’ accounts across Europe and channel it into investments.

To be relevant to clients, firms have stopped talking about products and now talk about solutions – for supplementary retirement income or school fees, say.

Christian Pellis, global head of distribution at Amundi, noted this. But holdings in money market funds are a well-known feature of the French asset management industry and increasingly in wider Europe, and the trouble is, he said, “when you talk about investing, people get scared”.

The challenge is to change perceptions of risk so that holding cash becomes regarded as a higher-risk option than investing in equities. To do this, he said Amundi has changed the way it speaks to its distribution partners in order to influence how they speak to retail clients. The idea is that, over time, underlying clients will “step out of cash and move slowly into investing”, Pellis said.

BlackRock’s head of global client service, Melanie Seymour, said the firm was using its recently launched Liquid Environmentally Aware Fund to similar ends. Although this is a money market fund – one with “phenomenal flows” in just a few months – “it begins to bring that money back into the market, it begins to look at ways that we can move that money into more and more investments”, she said.

The fund came about from listening to distributors’ descriptions of client needs, which identified an ESG [environmental, social, governance] demand in cash funds. Listening to underlying client needs is a major change in asset management that the whole panel recognised, but this attitude needs to penetrate through to institutional business, too.

St Louis said some institutional asset managers appeared less concerned with the individual, given the space they perceive between them and the pension fund member. “All money is retail money! That’s where it all comes from,” she said; to stay relevant to the public at large, institutional managers must bridge the gap between themselves and the end beneficiary of a pension fund.

Seymour agreed and said differentiation between firms will in future rely on “consistency and convenience”. This is a mantra she says she repeats at BlackRock.

Amazon offers a consistent and convenient shopping environment that asset managers need to emulate, she added. “I think we’ve all been guilty in different forms of making ourselves really difficult to do business with. I don’t think as asset managers, we have been consistent or convenient, and that’s what we’ve got to start to think about.”

St Louis said: “We all work and live in an environment where it’s one click to buy and if we can’t move our sector quickly to that … we will struggle to keep our sector relevant.”
Colin Bennett, head of global digital distribution at GAM Investments, suggested that while the asset management industry works out how to stay relevant to its clients, a younger generation is almost surpassing it.

“Very young people” he said, are “building alternative financial systems that actually will provide funds that we haven’t even seen before”. Competition will come from a new, digitally savvy generation working in a blockchain-based system. “It’s amazing what they are already producing.”

In response to a challenge from Calastone’s Glyn – that these people, though tech-savvy, would not have enough financial knowledge to rival traditional wealth managers and would make “really bad decisions really quickly” – Bennett said that new entrants didn’t necessarily need that knowledge, as it will be programmed into the tech. “They will understand the persona of that individual and understand the [level] of risk they want to achieve … it will all be built into the system.”

Bennett speculated that, in terms of personalisation of products and services, asset managers may not ‘own’ the client experience in future. They are not really connected to a platform’s underlying solutions in a way that non-finance platforms, such as Uber, are.

‘Platformification’ of the industry is, in fact, potentially making it harder to understand the client, he argued, and so asset managers may focus more on fund manufacturing, an area where perhaps their true value lies.

©2019 funds europe



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