Asset managers see digital transformation as a top priority but two-thirds slowed down by legacy systems and culture clashes
New research from Alpha FMC, the asset and wealth management consultancy, finds that many firms (80 per cent) are prioritising their digital transformation, with 61 per cent stating that they are “getting organised”, but nearly a quarter (23 per cent) feel that their digital maturity is “frustratingly fragmented” and that they are beginning to lag behind other organisations.
Alpha FMC surveyed 15 of the largest global asset management firms, collectively managing over GBP7 trillion in AUM. Respondents included a mix of CMO’s, Digital Directors, Chief Digital Officers and Technology Leaders. Eight respondents feature in the Investment Association’s top 40 asset managers by AUM and ten feature in the top 200 of IPE’s top 400 global asset manages by AUM.
The research highlights that the industry is undergoing a shift away from a product-centric view to a focus on the client. In doing so, spend is moving away from areas such as reg-tech solutions towards investing in customer experience and the overarching design of the business. This is helping to “future-proof” firms for broader industry changes.
Some 85 per cent of respondents said that improved client engagement is a key benefit from digital transformation. This is highly correlated with driving increased revenue and AUM. An improved client experience is seen to be key in winning new mandates and engaging distribution partners as well as retaining customers. Firms are looking to achieve economies of scale and in doing so need to adopt digital approaches and work collaboratively with sales teams to manage a wide range of client types.
The spend and resources allocated to digitisation differ significantly across the industry and are correlated to each firm’s stage of digital maturity. Some firms will be focused on developing their strategy and business design, whilst others have moved into delivery mode. For many asset managers, “getting organised” is characterised by having a nascent digital strategy and beginning to allocate budget and resources to foundation level capabilities and technology. The research found that the average amount asset managers are spending on digital each year is GBP15 million, but there is a wide spread up to GBP50m and above.
Asset managers still face significant challenges to implementing their digital programme. For over two thirds (69 per cent), legacy technology is seen as a primary obstacle, along with the need for a widespread change in company culture and mindset (62 per cent) and a lack of resources or relevant skillsets (46 per cent). A similar number of firms felt that a lack of investment was holding back digital innovation in their firm.
Questions are also being raised as to where digital should sit within a business, as the profile and importance placed on it as a discipline means it needs to move out from under the Marketing and Technology banner.
Kevin O'Shaughnessy (pictured), head of digital at Alpha FMC, says: “The asset management industry is at a key juncture, facing a mix of technological, regulatory and client behavioural shifts. Digital transformation is seen as essential to future success. Firms know the commercial benefits to be derived from digital investment, covering both the ability to acquire and retain clients but also the impact of improved client satisfaction, both of which lead to increased AUM and revenue. How to remain ahead of the curve, is now a Board level agenda item for many firms.
“However, the industry is still experiencing growing pains in its digital journey. Our research shows firms are currently focused on defining the role of digital, setting up the functions and investing in core digital enablers such as content management, social, analytics and data capability.”
Whilst FinTech remains a topic of interest, few firms are actively involved – either through acquisition or substantive partnerships – but most are looking to this sector to pave the way with new technologies and provide inspiration so that they can " follow fast" once technologies become more mainstream.
No asset manager felt the need to become a digital innovator themselves, and the majority (69 per cent) have not invested in FinTech platforms and do not have plans to do so. Only 15 per cent said they were focused on identifying and integrating FinTech solutions which range from robo-advice and AI to educational platforms.
The research suggests that over the next three to five years, asset managers will turn their attention away from more traditional digital platforms such as data management, cloud services and social media and focus instead on more innovative technologies like artificial intelligence, machine learning and blockchain.
Currently only 8 per cent of firms have a blockchain development plan in progress, compared with 31 per cent which have a robo-advice platform.
O'Shaughnessy adds: “Whilst FinTech is a hot topic, many asset managers are not yet fully involved with the FinTech community given the risk and upfront cost of investing in companies and proprietary software. Most are also overwhelmed by the plethora of start-ups and FinTech firms and find it hard to decipher who to talk to. Being able to identify the problem that a FinTech solution might solve and target the firms to engage with would be a good start to helping asset managers tap into the talent and entrepreneurial solutions available.”