Asset management: innovation “behind other sectors”
Renewed regulation and technological disruption in other areas of financial services are pushing the asset management community towards a critical point.
To survive, the community needs to attract the best and brightest fintech talent to solve its very real and very pressing challenges.
In response to this changing market, the Investment Association has launched its Velocity accelerator that aims to identify and nurture fintechs. The first cohort of 10 firms will benefit from access to the IA’s networks and potential clients as well as a bespoke co-working space and mentoring from the industry body’s advisory panel.
The first six month long Velocity programme begins in October in a bid to increase business efficiency and enhance customer experience within the asset management industry.
“Fintech adoption in the asset management industry is behind other sectors,” Herve de Laforcade, head of global marketing at Calypso, the global asset management technology provider, told bobsguide. “Digital transformation which is a big vector for fintech vendors and services has not matured yet but initiatives around cloud, big data and AI are gaining traction due to more visibility on ROI impact. We’ve witnessed that aspect of the transformation mainly from the operation processing.”
While the retail level has seen some functions – CRM, market data, reporting and payments, disrupted by the wider competitive market, the institutional level has historically lagged behind other financial sectors in terms of its adoption of innovative technology, says Laforcade.
The stick and carrot of digital transformation
If ROI is the carrot, for Keith Phillips, director for membership & enterprise at the IA, regulation is the stick that encourages fintech adoption: “The asset management industry is experiencing a period of substantial growth, combined with the recent raft of regulatory changes, the industry is now seeking technological solutions to improve business efficiency and enhance savers and investors’ customer experience.”
It situates the industry on the precipice of change, riding the coattails of the technology driven financial revolution, while regulations have squeezed margins.
And regulations the industry has had aplenty, adding evermore letters to the alphabet soup, according to the most recent PwC annual report on asset management.
In Europe, recent rules in the form of Markets in Financial Instruments Directive I and II (Mifid I and II) and Packaged Retail Investment Products (PRIIPs) as well as European Market Infrastructure Regulation (Emir) and the Alternative Investment Fund Managers Directive (AIFMD) have all applied pressure on the asset management community.
In the US, the Dodd Frank amendments as well as the Department of Labor’s Fiduciary Rule and the SEC’s Liquidity Risk Management Rule, add compliance pressure on a global scale.
“A shift to outcome-based solutions and the expanding market share of passive strategies,” reads the PwC report “are putting relentless downward pressure on fee levels and asset flows, which are skewed towards lower margin products.
“This is happening at a time when firms must invest in building outcome-based solutions and applying transformational technologies.”
The IA’s Velocity accelerator aims to do just that.
Guided by an advisory panel comprising of 24 senior industry leaders, and headed by Graham Kellen, chief digital officer of Schroders, the accelerator aims to nurture adoption of emerging technology in front, middle and back end office operations.
“Velocity will unlock the potential of these firms to implement their solutions within our industry, which is ultimately to the benefit of savers and investors. We have brought together for the first time a market-defining Advisory Panel which is truly representative of the asset management industry to ensure that we are selecting and developing the top talent,” said Chris Cummings, chief executive of the IA, in a statement.
Identifying the fintech opportunity within the asset management industry is half the battle and Phillips of the IA believes asset managers are in the technology market to “improve efficiency, increase transparency and traceability, for instance, automating compliance procedures, removing the need for paper-based processes and reducing cyber-related risks.”
Automation is an area of technology that has received strong headway in recent years as AI, machine learning and robotic process automation (RPA) become ever more sophisticated. Regulators too have been proactive in this area as the FCA’s head of regtech recently told bobsguide of his desire to leverage machine learning.
On the subject of regtech, asset management technology has been a comply-and-done product, although attitudes are changing.
“We pioneer the idea of ‘Regulatory data warehouse,’” said Calypso’s Laforcade. “It keeps track and restitutes online all executed trades detailed information, enriched at each step of the trade lifecycle and each step of the valuation of its portfolio and finally each modifications having altered the original records.
“Regulatory requirements are then mapped with existing or extended associated data and become accessible for reporting purpose.”
According to the new market participant and first fintech member of the IA, Carl-Henrik Thorsen, VP of ClauseMatch, the slow compliance tech adoption – until now – largely revolves around the pressure applied to buy-side by the regulators.
“Requirements around Mifid II, GDPR and the expanded Senior Managers Regime are examples that have hit the buy-side, and we see the realisation that the buy side can’t afford the army of compliance personnel that most banks have had to hire,” he told bobsguide.
Thorsen does however believe the buy side has a natural advantage over the banking sector when it comes to regulation.
“The buy side actually benefits from the lessons learned by the banks over the past decade. While the two industries often view each other as the polar opposite, I would argue there’s a lot to benefit from if they are open to these discussions.”
Ultimately, greater collaboration within the industry as well as between buy side and fintech vendors will drive the technological renaissance.
“The UK has a world leading pool of talented fintech firms whose solutions are key to driving innovation,” said the IA’s Phillips “ensuring that we remain globally competitive.”
As firms progress their digital adoption and transformation plans, that tech is more and more being employed across the value chain.
“This is reflected in the range of fintech and regtech firms who have joined the IA’s new FinTech membership category,” said Phillips, “from funds’ marketing and distribution to client acquisition and onboarding, portfolio management, mid and back office operations such as client reporting.”
Likewise, Thorsen hopes the IA’s objective to push the asset management industry to collaborate could break new ground: “There is real appetite for emerging technologies such as robo-advice or automated solutions for a more digital-native group of customers.”
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