Digitalization: The path to resiliency for asset managers

Jason Baldesare June 16, 2021 09:37

The COVID-19 pandemic has been the ultimate test of resilience for capital market firms – not least in the volatility it has brought to the financial industry. Asset managers have certainly faced their share of pandemic-related challenges. Fiscal and monetary responses to the pandemic have sent real yields on conventional fixed-income products into negative territory while liability valuations have soared.

Having weathered the initial COVID-19 storm, concerns about market volatility and “slowbalization” have gradually subsided. However, our Readiness research, which surveyed 250 executives around the world, reveals CapEx pressures and prolonged low or negative rates are having real impact.

The silver lining is that many attractive opportunities remain, and by leveraging the right technologies, asset managers can capitalize on these opportunities.

Digitization a source of competitive advantage

Many asset managers were already on the right path with the digital transformation programs they have begun – from upgrading core operating platforms to becoming cloud-native to reinventing the front office. But COVID-19 rang an alarm that the industry needed. And while executives as a whole weren’t asleep at the wheel, for most firms their transformation programs were too incremental to keep pace with the level of change brought about by the pandemic.

The digital leaders – those who were early adopters of digital solutions – have seen significant benefits in both revenue growth and cost efficiencies. A December 2020 report from McKinsey showed that digital leaders have achieved 14% gross sales growth relative to more traditional approaches. Firms like HSBC, UBS, Vanguard, and Charles Schwab have all transformed their operating models with a digital-first approach to client interaction. Vanguard states that around 95% of all its client interaction is digital today.

Leaders in the digital space tend to be full-service institutions that service the spectrum of retail and institutional investors. These leaders are early adopters of advanced technology and have placed an emphasis on innovation and a customer-centric approach to technology. Alternative investment managers, specifically private equity firms, have made strides in this space but continue to be in the earlier stages of the digital transformation journey.

Improving investment insights and enhancing the client experience

Digital solutions have seen the biggest impact in asset management in the areas of sales and distribution, account onboarding, and front office portfolio analytics and decision making. Both retail and institutional investors have the expectation that the products they are buying are simple, and that the data is transparent and easily accessible for them to make decisions. Digital solutions have helped asset managers meet both requirements by creating an omnichannel digital sales experience for their clients and prospects.

For active managers who are looking for ways to combat the low fees of exchange traded funds (ETFs) and other passive investment products, these digital solutions allow advisors to interact with their clients and prospects in ways that were previously not possible – modeling portfolios and visualizing changes based on different risk profiles, goals, and market events. Both manager and investor benefit from solutions that leverage this data to create customized products and services.

Digital solutions have become even more beneficial during the pandemic. As sales, customer relationship, advisors and portfolio managers have all moved to working from home, their interactions with their clients have changed dramatically. While they pivot to meet with clients virtually, having digital solutions take the place of traditional approaches to sales and portfolio management have made the transition less challenging for firms that had invested in these solutions pre-COVID.

For firms that are leaders in these areas, the next step is to leverage advanced technology or artificial intelligence solutions to further enhance the data and insights created from these digital solutions.

Data privacy is paramount

It’s worth noting that the usual alphabet soup of regulations impacting the asset management industry will still apply when thinking about “digital”. However, certain aspects will have increased focus and asset management firms must ensure compliance. Any time you are inserting a digital solution between the asset manager and its current and potential clients, the focus on data privacy and cybersecurity will be paramount. Threats associated with improper collection, storage, and usage of client data will also invite regulatory scrutiny.

Additionally, regulators, rightfully shifting their attention to areas such as surveillance and fraud, will add complexities and costs to the challenges. Robust RegTech and surveillance tools across operations can help to combat these threats.

As we start to look ahead, we need to ask a question: are we prepared for the unexpected? This is not the last time we will experience the unexpected and need to rapidly adopt to a shift in the way we operate. Asset managers need to think about how they consume technology to ensure maximum resilience and efficiency.

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Jason Baldesare

VP, Strategy and Solutions Management, FIS