Asset Management: A Perfect Storm Brewing

Asset management is the industry vertical that covers all things “investing.” From the smallest independent “mom and pop” advisors through to the largest, global asset managers, such as Blackrock and SSGA. In between is a whole host of businesses – including but not limited to – hedge funds, private equity managers, venture capitalists, mutual fund providers, private banks, wealth managers, platforms and distributors. We can then add in those firms that administer assets, such as custodians, transfer agents, third party administrators and investment management outsourcers. All of this combined equates to over $100 trillion of assets under management/administration. It’s a staggering amount.
Whilst technology has always played a part ever since the birth of investing, I would argue that asset management in general is a laggard compared with other verticals. It’s almost old hat to talk about all of the actions we carry out online — we buy goods, book holidays, seek opinions on the best places to eat, meet a partner, monitor fitness and record every moment of our lives on social media. All of this is done digitally. Many asset managers are still trying to figure out what to put on their website, never mind tackling the bigger issues that face them through emergent competition – much of which is coming from challenger firms who see digital as the new way forward.

It’s time for asset managers to let go

Sure, we know it’s coming and investment in digital is certainly growing, but fundamentally asset managers have held themselves back by holding on to two things for too long. First, a disproportionate appetite to try and keep up with massive technological change using only in-house and home grown teams. Second, an ingrained culture of fear or cynicism towards this thing called the Internet.

The perfect storm

From a business perspective, we have the U.S. potentially about to increase interest rates, the Greek “situation” perched on an edge, and significant inroads being made to the investing landscape through the success of ETFs. From a technological perspective, we have the very real emergence of new entrants from crowdfunding through to robo-advisors.
The culmination of all of these things is going to take a grip on the industry in the second half of 2015 and change the fabric of how we invest forever. There will be huge pressure to reduce costs across the board and mutual fund managers/distributors and private banks will bear the brunt. The need to deliver investment performance will be ever present but, most importantly, will be the need to market, sell and provide investors with what they need to see, when they want to see it.
The positive message I have is that CEOs and their boards are beginning to awaken. The top-down effect is the only way firms will set the change in motion. It’s a difficult balance between spending (when the cupboard appears empty) and doing the right things (when there may be no or little technological vision).
The time has come. Necessity, as they say, is the mother of change.