Ahead of the Sibos technology conference in Australia, we asked tech specialists for their thoughts on the asset management industry as it moves towards greater digitisation.
JENNIFER PEVE, MANAGING DIRECTOR, FINTECH STRATEGY, THE DEPOSITORY TRUST & CLEARING CORPORATION
Digitisation is creating substantial improvements in post-trade processes but existing post-trade models include many manual processes that must be adapted or re-engineered to interface with digital platforms. Additionally, the adoption of nascent technologies can create potential risks. For example, the implementation of robotic automation tools has led to decisions that used to require human judgement increasingly being replaced by data-driven algorithms.
A rush to implement may result in post-trade exceptions not being properly accounted for, and thus further downstream settlement complications.
The speed of automated systems may exacerbate errors, compromising management’s ability to take action. It is essential that all risks are assessed and the appropriate controls are implemented when digitising any process.
SARJ PANESAR, GLOBAL HEAD OF BUSINESS DEVELOPMENT, ASSET MANAGERS, SOCIETE GENERALE SECURITIES SERVICES
The main benefits can be broken down into three major groupings: operations, distribution and data – how digital services can improve the operational efficiency of the organisation. Technologies such as AI and robotics are particularly useful for financial institutions with processes that are very labour-intensive and require a high amount of human resources, such as reconciliations. Technologies such as DLT are being shown to help in the accuracy and speed of distribution product. And we are now seeing some examples of the use of big data in helping asset management businesses influence strategic decision-making. The impact is felt across the business – such as predicting asset valuations to fund investor behaviour.
PAUL STILLABOWER GLOBAL HEAD OF PRODUCT MANAGEMENT, RBC INVESTOR & TREASURY SERVICES
Digitisation has pressured asset managers to modernise their business model, find ways to attract new customers, and gain greater insight into their existing ones. It has also created a proliferation of data which is challenging asset managers to extract valuable insights in order to better understand and service their clients’ changing needs.
Data warehouses and data lakes can be used to find and assemble previously unstructured data into useable forms that can be analysed to uncover trends, anomalies and errors.
When used appropriately, the data can help managers gain advantages and manage oversight and regulatory requirements while supporting their clients’ business objectives. However, the key challenge remains to unlock the true value of the data.
Robotic process automation (RPA) also continues to gain traction in order to simplify work and improve the client experience through enhanced controls, accuracy, turnaround times and productivity.
We expect RPA will continue to grow and evolve within the asset servicing sector.
ODED WEISS, MANAGING DIRECTOR OF TEMENOS MULTIFONDS
Asset management has so far largely escaped the disruption we’ve seen in many other industries. However, the demands from asset managers on third-party service providers have changed due to increasing regulatory standards necessitating far greater oversight, accelerating product innovation, competition through digital channels, combined with increasing cost pressures as margins have continued to fall. In response, third-party administrators are investing heavily in R&D to be able to offer the technology, data and services to help asset managers compete in the digital world.
Digitising distribution has also become a key trend, using data analytics techniques mastered in other industries to support sales and marketing, so that investors are provided with seamless, transparent and easy-to-understand products via digital channels.
CHRIS GRANDI, CEO, ABACUS GROUP
Ongoing market volatility will make fund managers pay closer attention to their operating costs to ensure they are balanced against a management fee that is always fluctuating. Managers should proactively address their technology costs by moving to a cost model that will adjust with their assets under management. All firms used to need to make a sizable capital expense investment from the beginning to get their technology needs up and running, and then put aside even more for any unknown issues or upgrades that would come down the road. But now, due to cloud computing, firms can turn all of their technology into a scalable operational expense with deterministic billing, based on actual headcount, and even getting rid of PCs due to VDI technology.
There is also cyber security. As tech firms come out with new solutions almost daily, we caution funds to be very cognisant of what may be a ‘shiny’ new object where cost is low, but lacking in cyber-security diligence.
KEVIN O’NEILL, GLOBAL HEAD OF BUY-SIDE DIVISION, FENERGO
The biggest challenge is to agree on a strategy, and the type of technology used. There are a variety of risks in selecting a technology solution that will not become outdated too quickly, which is why sometimes asset managers like to wait for the early adopters to explore it before following suit. The millennial generation wants to be able to access their funds via mobile, to switch in and out of funds easily, and demand the most seamless process possible. Other financial services industries in the financial services world have produced slick mobile solutions, particularly in the retail space, and asset managers are having trouble staying abreast of this.
Apac [Asia-Pacific] has been ahead of the curve in terms of technology innovation and integration, and as an industry we can leverage their best practices. Asset managers have followed a ‘comfort in numbers’ approach, but it has stiffened innovation in the segment. We need to change up the DNA of these organisations to come up with new and innovative ways of looking at operating models and managing the client experiences that use the best of other industries.
ANDREW KOULOUMBRIDES, CEO, XCEPTOR
The industry has gone backwards on the goal of STP (straight-through processing). Digitisation was never in scope when it came to automating the trade life-cycle. With a backdrop of long cycle consolidation, bridging the gap between STP challenges of old and new digital interactions and customer experience is a major challenge. This can be overcome, but many will fall at the first hurdle – they will assume that the data is available. This is the root cause of low automation and consequently low insight. The industry must take a data-first approach to solving the challenge.
JERRY NORTON, HEAD OF STRATEGY, FINANCIAL SERVICES, CGI
According to CGI’s Client Global Insight report for 2018, the top challenges for digitising the asset management industry were cultural change, regulatory compliance and cyber-security concerns, technology/legacy/agility constraints and data management. These challenges can be overcome but not overnight.
Firms must adopt multi-year, incremental strategies deployed over the longer term, completely refresh their talent across the board, and develop new ways of working. Without new talent, the business model cannot be transformed, advanced technologies cannot be introduced, and systems will not be modernised. There is a need for continuous investment in technologies too. In particular, firms must re-architect their IT strategies. Doing this in a market where regulators are becoming tougher, with continuing cost pressure, aggressive competition and squeezing margins, remains difficult.
PEDRO PORFIRIO, GLOBAL HEAD OF CAPITAL MARKETS, FINASTRA
The level of regulations that asset managers have to deal with has increased considerably in the last few years. Historically they have a lighter IT footprint than banks and they are more open to innovation, hence they are keen on adopting cloud and other technological innovations that are the first steps towards migrating to a platform where they can have flexibility without the complexity of on-site deployment. It is not a surprise then that we have seen a lot of interest from current and new client engagements in this area. They tell us that they want to focus on what their teams do best, and that’s investing. Cloud and app services are not their core business and they want to outsource this to reliable financial technology companies.
MIKE THROWER, MANAGING DIRECTOR, BROADRIDGE
The challenge [in digitising the asset management business] is how to capitalise on innovation when margins are compressed. Technology is evolving in line with customer behaviours, supporting the growing demand for personalised and on-demand services delivered via multiple devices. As such, asset managers have a very real opportunity to drive ahead with their digital roadmap and deliver an enhanced customer experience for their end-investors. However, they must do so in an environment of tighter margins, heightened regulatory transparency and a growing need to demonstrate performance through effective stewardship and evidence of funds’ value for money. To deliver against this, asset managers will need to leverage strategic partners that can help accelerate their adoption of new fintech innovation, efficient portfolio and expense management technology, and responsible investment.
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