Asset Management in the Digital Age

Who wants paper from their asset manager or wealth management firm? In most markets, customers are charged to upgrade when new services become available, but in the investment business, this model has been turned on its head – investors who want paper-based statements and reports, rather than opting for access to newly-launched online platforms or portals, are increasingly being asked to pay for the privilege.
Asset managers prefer digital communications channels partly because they’re cheaper to maintain (no more expensive postal charges to despatch mountains of paper that isn’t ever read). But for many firms, the allure is more about the data that online communications offers – an almost endless supply of information on what their customers are interested in, how they move through a given investment process and which products and services they might buy.
Still, while that might be attractive, it’s fair to say that the asset management sector has not been at the vanguard of digital adoption. One report, published by Create Research earlier this year, described the pace of change in the industry as “glacial”.
Time is running out for the laggards. Accenture’s report into digital transformation in the asset management sector lists six different themes that require a response:

  • Demographic change – increasingly tech savvy portfolio managers and clients want to conduct business primarily through digital channels;
  • The rise of low-cost providers – the emergence of cut-price models requires traditional asset managers to prove their worth;
  • Emerging market growth – investors in these markets are very often more likely to rely on mobile technologies;
  • Regulation – regulators have not kept pace with digital technologies in financial services and firms that fail to engage with this challenge may not be able to realise their ambitions;
  • Risk – in a volatile but low-interest rate environment, the challenge is to deliver a reasonable level of return while managing risk;
  • Brand and reputation – clients and advisers influenced by social media and digital channels must be courted through these routes.

What does this mean in practice for asset managers?

The short answer is they must do much more than simply offer clients access to online communications about their investments as an alternative to paper statements. Investors want platforms that allow them to connect their accounts so they can see their assets in the round. They want sophisticated digital tools that enable them to analyse risk and return in a variety of different ways. And they want access to new asset classes – whether recent developments such as crowdfunding or more established investments that were previously the preserve of the institutions, such as alternatives.
Bill Doyle of Forrester Research believes traditional asset managers are already losing ground to firms able to provide these services – and more. “The same forces of digital disruption that upended music, travel, and news are now coming for retirement, wealth, and asset management,” Doyle warned in a recent Forrester report. “Standing on the shoulders of other recent disruptions in retail investing – low-cost index funds, exchange-traded funds, deregulation, and the Web – digital disruptors are set to transform the industry.”
In many cases, this is already happening – look at Nutmeg in the portfolio construction space, for example, or the remarkable growth of crowdfunding platforms such as Funding Circle and Ratesetter. And with consumers now ready for digital disruption, industry conditions that support innovation, and technologies that are robust, this is just the start.