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AI, automation and applications — how firms are innovating

Money Management Executive reached out to Carson Group President Teri Shepherd, EquBot CEO Chida Khatua and others about technology trends in asset management.

Digital innovation increasingly plays a key role in asset management.

By next year, according to PwC's report "Asset Management 2020: A Brave New World," most global asset managers will have a chief digital officer. Investment in technology and data management will continue to be critical to distribution, and to managing regulation, reporting and operations.

Money Management Executive reached out to various industry leaders to get their take on the latest trends in tech disruption.

"Asset managers, like many businesses today, are being asked to do more with less," says Teri Shepherd, president of Carson Group. "The only way this can be accomplished is by automating certain processes."

Chida Khatua, CEO of EquBot, adds: "Opportunities for asset management firms to develop ever more customized AI-driven approaches will be a major boon for firms."

For more on what Shepherd, Khatua and other executives had to say about the future of technology in asset management, read our special report.

Milestone Group Chief Technology Officer Phil Davies
Moving away from costly complexity
In asset management, the current technological transformations are vast. CTOs are actively looking to simplify their application architectures to eliminate all unnecessary replication of data and the resultant need for data movement, reconciliation and validation. This is certainly a cost-driven initiative, but also relates to risk and business agility, as firms try to remain relevant in a rapidly changing market.

While nobody suggests a complex investment business will run on a single platform in the near term, there is a significant trend towards rationalization of systems by moving to a limited number of multi-solution platforms that provide support across multiple business functions, products and asset classes.

This macro trend goes hand in hand with the more heavily discussed themes around standardization of architecture and applications across business lines and geographies, and of course the acceleration of shifting to managed cloud-based IT infrastructures.

IT departments in asset management firms, now more than ever, need to maintain competitive technological capabilities with limited resources.

Traditional build versus buy decisions are, for the most part, already answered before the analysis is started. Individual firms generally no longer have the human capital to entertain competing with maturing global fintech platforms, which have superior scale, R&D capabilities and agility.

Asset managers must move away from implementing costly and overly complex architectures that are difficult both to manage and change. Some asset managers have become overly dependent for technological advancement on administrators who struggle to maintain the pace of innovation that will match that of fintech firms.

A notable development in Gen 3 outsourcing models is that they are increasingly technology driven with a focus on data, collaboration and hardened oversight and backup NAV capabilities. These trends are driving a lot of focus on a new operating paradigm to remove friction and contain the costs for asset managers.

Carson Group President Teri Shepherd
The importance of automation
Automation will continue to be at the forefront of strategic planning.

Simply put, asset managers, like many businesses today, are being asked to do more with less. Sell and satisfy more consumers, with less overhead. The only way this can be accomplished is by automating certain processes. On the operational side, that can mean marketing automation, workflows for lead generation and more sophisticated digital compliance and supervisory solutions. On the investments side, that might mean automating risk assessment, market research and trading.

While today's technology is unquestionably more sophisticated and offers higher quality solutions, major problems arise when those tools can't communicate effectively with one another or if the data provided is inaccurate. Integration is key.

The ability to link as much as possible together — creating a single pane of glass — has become a critical differentiator in driving business growth and attracting talented employees. This could include client relationship management (CRM) tools, marketing software, online portfolios, reporting and trading platforms.

This then leaves the internal teams with the ability to focus on the bigger picture and what's best for their clients.

While technology enhancements and collaborations are on the horizon — they are not and will not replace genuine interactive client relationships. Technology is just a conduit to deliver advice and services more efficiently and transparently for the benefit of the end consumer.

Helios Quantitative Research Chief Investment Officer Joe Mallen
Increasing innovative options
The operational reality for financial advisors is rooted in two key factors right now:

  1. Investors are better educated than ever before, and they expect their advisors to know more and provide better results.
  2. The advisor marketplace is crowded, and the need to make a real difference for clients is vital to winning business.

Asset managers need to help advisors face these challenges, and managers who harness the power of technology have the ability to be better partners. We see two key avenues for asset managers to succeed in this realm:

  1. They should provide innovative products.
  2. They should offer a wider range of solutions.

Advisors are looking to asset managers to design retail-friendly products with a simple story. Managers who use technology to assess historical trends and design innovative solutions will be the most successful in partnering with these advisors, and satisfying their specific needs.

The level of data that is available to make educated and high-probability decisions is continuously growing. Embracing technology to make sense of this data can enable advisors to confidently invest their clients' assets.

Managers with a wider array of offerings prove to be stronger partners to advisors as well. Embracing technology can, among other things, help expand services and help advisors run a leaner practice.

We recognize that advisors are looking to do more with smaller teams and still need to find ways to successfully engage the next generation in order to fortify the future of the practice. Thus, we offer solutions that create new revenue opportunities, save time and drive overall efficiency for the business.

As more advisors look to outsource key services, asset managers who are leveraging technology stand to be better prepared to compete and add differentiated value.

EquBot CEO Chida Khatua
Tracking the AI evolution
When we look to the next evolution of asset management and the role AI will play, we consider three key factors that will continue to drive the use of AI and machine learning.

First, data. Ninety percent of all data in existence was created in the past two years, and that pace will only increase. Consequently, decision-making and data analysis will become more of a challenge for the traditional fundamental researcher or manager.

Having the ability to quickly assimilate and understand all this data and make unbiased decisions will therefore not only be advantageous to the forward-thinking asset manager, it will be essential. And, despite the concerns that human jobs will be lost to machines, we believe it's unlikely AI will operate as a complete replacement for human managers and analysts.

Second, innovation around AI-powered products and approaches continues to develop. The introduction and availability of AI-powered investment products and tools is opening new doors for investors. Further, as the category grows, opportunities for asset management firms to develop ever more customized AI-driven approaches will be a major boon for firms.

Third, to the point above, financial institutions are seeing these technological enhancements being applied and reported across other industries. Asset management has historically been somewhat behind the curve when it comes to incorporating new technologies, but we're seeing more direct investment by financial services firms into AI and ML, with the goal of making better investment decisions and becoming more efficient.

Chris Violani, head of business development and marketing, North America, NeoXam
Finding functionality in outsourcing
With the global political and regulatory climate meaning returns are no longer guaranteed, cost-saving has become a crucial consideration for asset managers when looking at profit. For some firms, managed services are the answer. But it isn’t as simple as throwing all of your processes at a third party and hoping for the best.

In order to see actual benefits from managed services, asset managers need to work out what the functionality is that they want to outsource, and whether there are enough measurable cost savings to justify outsourcing it.

This involves an honest audit of an asset manager’s existing systems in order to determine what would provide the most cost savings if managed externally. These elements can include costs from infrastructure and hardware, to software, employees and support.

However, the work doesn’t stop there. Once a firm decides on an outsourcing strategy, it needs to think about any new elements of risk that an outsourced strategy could introduce. These risks could include reliance on an outside vendor for service levels and disruption in internal day-to-day activities, reliability and customer service.

The former shouldn’t be an issue if a careful provider selection process is put in place. Asset managers should look for software, data and hardware providers which can configure their solutions to address individual and unique needs in order to maximize investment and mitigate risks.

There is no “one size fits all” answer here, and managed services are by no means a silver bullet. As long as asset management firms take a considered approach to managed services, they build a long-term strategy which allows them to reduce costs and improve efficiency.

Portfolio Pathway CEO Dave Miller
Treading volatility waves with tech
Asset management businesses are challenged in meeting their profit margins given the lower earned fees on assets they are managing. In order to tread the waves of a volatile market, stay ahead of global competition, and retain customer expectations and trust, asset managers have shown interest in new financial technologies and consultancies to help ease the burden.

According to the FIS Global survey, 89% of asset managers scoring in the top quintile had centralized organizational data, and 58% have put applications in the cloud. This shows that the industry is looking to include data-driven decision-making tools and processes to improve efficiency, risk and reduce resources. They are connecting technology in ways that unlock an entirely new level of agility, efficiency, and value.

All-in-one cloud-based wealth management solutions are an attractive option; they consolidate IT resources and maintenance, are user-friendly, provide 24/7 support along with timely startup, and constantly evolve toolsets to accommodate business growth, maturity and accessibility.

We can expect asset management businesses to make financial technologies a mission-critical part of their overall strategy to drive customer engagement, data mining for information on existing and potential clients, operational efficiency and regulatory and tax reporting.

To assure business proficiency and security, firms should also look into investing in chief digital officers who can support the management of these important assets.

As more options and processes become available to the market, financial technology solutions will continue to be at the forefront of managing assets and add value to remain competitive in an already crowded field.

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