Kevin O'Shaugnessy, AlphaFMC

Asset management industry increases spend on digital transformation by GBP8 million a year in last year


Over the past 12 months the asset management industry has made significant progress in advancing its digital capabilities, according to the latest Digital Readiness Survey from Alpha FMC, an asset and wealth management consultancy.

The study finds that firms are seeking to reinvent both how they interact with their clients and how they operate, and that digitalisation is a key element to success. It shows a continued focus on the use of digital approaches to improve client experience, making the most out of the data they have available, and making use of new technology to drive further operational efficiencies. There is also a greater priority being placed on finding compelling use cases for automation, and the introduction of agile ways of working to bring business and technology together.

Asset managers view digital as high priority; over a third of firms (38 per cent) now classify themselves as “Fast Followers”, whereby they have developed a strong digital capability but there is still room to progress. This compares to 9 per cent of firms which felt they were at this stage twelve months ago.

Also, analysis showed that the net flows as a  per cent of total AUM, for those with the higher levels of digital maturity were up to 4 times stronger than those who were at the earlier stages of their journey.

Alpha FMC surveyed 31 of the largest global asset management firms, collectively managing over GBP18 trillion in AUM, operating across markets in UK, EMEA, APAC and the US. Respondents include a mix of CMOs, Digital Directors, Chief Digital Officers and Technology Leaders with a responsibility for digital. The annual study acts as a barometer of how far the industry has progressed with its digital transformation.

2019 saw an increase in the average spend by asset managers on digital transformation activity, as firms progress their digital strategies and begin to expand digital outside of marketing and distribution focused initiatives.

Average spend has gone up from ~GBP9m in 2018 to ~GBP17m in 2019. On average, firms are now dedicating an average of 8 per cent of their full-time resources to digital projects and everyday activity. Across the industry budgets are varied, with 17 per cent of firms spending GBP50 million and above. Almost a quarter of respondents spend less than 2 per cent of their annual budget on digital transformation, however 40 per cent say that between 10 and 50 per cent of their budget is digital focused.

Kevin O'Shaughnessy, head of digital transformation at Alpha FMC, says: “The market backdrop to this year’s study has been tough. Firms are dealing with a mix of cost and margin pressure, continued regulatory change and also the impact of topics such as Brexit. Firms realise that market conditions will be challenging and are therefore reassessing their digital transformation activity to help improve performance.

“The good news is we have seen firms become more digitally mature, especially those which invested early and now are able to interact more effectively with clients. These companies are beginning to create  leaner and more agile enterprises to deal with cost pressure. Others are a few steps behind, but we see great ambition across the industry and senior leaders are prioritising their digital agendas.

“Firms are placing more focus on the here and now, and as such, innovation efforts – for example around blockchain & AI – have been placed on the back burner so resources can be directed towards client experience design, data and automation activity.”

The commercial upside of adopting a “digital first” model is becoming better recognised across the industry. Firms rank economies of scale as a primary benefit, as they seek the holy grail of “faster, cheaper, better” outcomes via agile ways of working.

The importance of automation has also grown, as firms recognise that improvements can deliver a mix of benefits including reduced risk, improved client experience and improved productivity; 82 per cent of asset managers said that process automation is a priority. However, despite its clear importance, 20 per cent of firms ranked a lack of investment and user adoption as the two main challenges holding back automation in their firm.

There has been a significant shift in what are viewed as the main challenges to digital adoption compared to last year. A change in culture remains a highly ranked choice, alongside a lack of senior leadership and buy-in; 52 per cent of respondents say digital adoption is culture or organisation led, rather than technology led. Legacy technology and lack of skillset within the organisation are no longer viewed as the biggest issues, which is understandable as digital maturity increases and firms make the requisite hires in tech-focused roles.

A total of 73 per cent of asset managers view shifting customer and client expectations as the biggest threat in 2019, however threats have become more diluted compared to last year with almost all answers picked by an increasing proportion of participants.

Some 56 per cent are concerned about the increasing cost and time of delivery. Worries over regulatory pressures (40 per cent) have also increased compared to last year. This could be partly a function of increasing scope and breadth of digital delivery overall.

O'Shaughnessy adds: “Firms now recognise that digital transformation is not simply about buying technology and talking about client centricity. The industry recognises the need to address the cultural and organisational challenges of guiding a firm from a traditional asset manager to a modern, nimble and lean investment house. The most successful firms will be those that are centred around the client and can adapt to the shifting economics and dynamics of the global asset management industry.

“These drivers have seen firms start to consider how enterprise agility approaches can be applied in the same way in which it has become mainstream in adjacent sectors like the banking industry. We are also seeing firms take a more pragmatic approach to areas which were buzz words in 2018, in particular automation. Firms are looking at practical and immediate ways of improving workflow and automating repetitive low value tasks in areas such as onboarding and client reporting”.

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