Asset management’s 'fourth industrial revolution' is here
Innovative technology continues to transform asset management in multiple ways.
Money Management Executive reached out to industry execs for their takes on current and future trends in tech.
"2020 will be a year where the industry invests even more heavily in technology that can improve experiences," says Fred Duden, global head of product development at Broadridge.
CAIA Association CEO William Kelly says managers are expected to spend over $1 billion on alternative data sets.
Whether it's AI managing regulations, next-gen tools acting as data scientists or natural language processes analyzing news, these execs say tech will change how managers work.
Navigating regulations with machine learning
Brian Clark, CEO, Ascent
Regulatory complexity has exploded in the years since the financial crisis. Massive new regulations, from Dodd-Frank to EMIR and MiFID II, have been brought down on asset managers with increasing frequency.
The challenges of increased regulatory complexity may seem intractable and insurmountable, but a nascent industry is set on leveraging technology to overcome them. Regtech companies are employing machine learning, natural language processing, AI and other technologies in an attempt to streamline compliance processes, increase efficiencies, and lower costs and risks.
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These solutions offer significant opportunities to asset managers. Already, existing and emerging solutions generate reports automatically, streamlining the production of the hundreds of disclosures asset managers must produce throughout the year.
And increasingly, regtech companies are developing tools that recognize and flag issues (trading patterns, capital flows, etc.) that would likely attract regulatory scrutiny, so firms can tackle a thorny problem before an inspector comes calling.
Leveraging AI, regtech solutions could even tell asset managers in advance of a trade exactly which regulations apply and how to execute compliantly. KYC and due diligence tools exist today that can meaningfully streamline the customer onboarding and monitoring processes. AI programs have also developed to the point where they can reduce 1,000-plus-hour-tasks, such as regulatory change management, to minutes.
The regtech industry still has work to do, especially in proving their solutions can deliver. But in an environment where passive investing trends are pushing down management fees and compliance costs keep skyrocketing, regtech can provide asset managers with a viable path forward through the maze of regulatory compliance.
Managing the fourth industrial revolution
Joe Boerio, Chief Technology Officer, Franklin Templeton
Disruption is certainly continuing to shape the way we view the asset management industry and how to best serve our clients.
Perhaps first and foremost is how data is leveraged to help supplement the investment management process.
While fundamental analysis certainly isn't going away, the types of items we analyze are evolving - for example, using natural language processing to gain insights from hundreds of news releases or online articles, or the ability to analyze millions of personal loans with the click of a mouse to exponentially increase the investable universe.
We're also seeing new distribution models emerge. These include turnkey asset management platforms that can be used to oversee clients' investment accounts and analyze how different components can help them reach their financial goals, and fintech partnerships that may reveal technological advances we haven't even thought of yet.
Finally, we see new investment instruments and products emerging. Blockchain is a great example of how a disruptive technology can be leveraged to further enable, create, issue and trade financial instruments. It's also interesting to observe the democratization of alternative investments. Developments in this area should allow us to bring the highest-quality alternatives to a broader array of advisors and their clients.
It's an exciting time in the asset management industry. We're rounding the corner of the fourth industrial revolution, and the fifth will be here before we know it. It's time for all players in the asset management industry to welcome the digital disruption.
Embracing next-gen tools
William Kelly, CEO, Chartered Alternative Investment Analyst Association
Necessity is the mother of invention, according to Plato's "Republic."
While this is likely true when it comes to fire, oil and the wheel, it is less clear that Plato would apply the same nexus to artificial intelligence and its offspring known as machine learning. These modern necessities are beginning to find their way into the investment process.
This means that the portfolio manager might be ceding some construction ground to sentiment analysis and underlying algorithms that are capable of learning themselves, and eventually making investment decisions.
Active management is on a continuous hunt for alpha in a market that has become exceedingly more efficient. The increasing flows to indexed mutual funds and ETFs stand as a testament to how hard this craft can be.
The fertile ground for alpha is usually found in pockets of inefficiency. There is little doubt that the sheer size of the alternative data pool, along with digitization of just about everything dating back to the cuneiform system of writing, has captured the attention of most portfolio managers. While this phenomenon is still nascent in many investment processes, it has become too big to ignore.
Case in point: Money managers this year are expected to spend over $1 billion on alternative data sets. Data scientists are often part of an investment team, but they may lack the basics of analytical training as they are tasked to draw conclusions from disparate data sets using programming languages such as Python.
Next-gen tools should be embraced ethically and transparently for the ultimate benefit of asset owners.
How tech is transforming asset management
Fred Duden, global head of product development, Broadridge
The wealth management industry closed out 2019 with an industrywide shift to zero-commission trading. It's yet another proof point that portfolio construction is on the track toward commoditization.
As a result, everyone in the industry, from asset managers to financial advisors, should be searching for an answer to the following questions: What is the value of advice? How am I differentiating my business through customer experience?
The answers to these questions are increasingly found through financial technology and digital transformation. As a result, 2020 will be a year where the industry invests even more heavily in technology that can improve experiences.
As the average investor becomes more digitally savvy, a user experience that is real-time, omni-channel and self-service moves from a nice-to-have to a need-to-have.
For that shift to happen, changes need to occur at all levels - from implementing microservices and adding API integrations in the back office to prospecting and retaining clients with AI-enabled tools in the front office.
Wealth managers have been tasked with simultaneously upgrading their tech stacks and value propositions. This means that clients who, five years ago, would never have considered adopting technologies such as cloud computing are now doing so, while properly addressing lingering security concerns.
The most sophisticated wealth managers are considering how tokenization can bring about new investment opportunities. Growth-focused financial advisors are leaning on social media and digital channels more than ever to gain clients and grow assets. There's really no questioning that the transformation of the industry is already well on its way.
Digital tools drive personalization
Bill Finnegan, managing director of financial services marketing, Seismic
Following in the footsteps of brands worth emulating, such as Capital Group, Amazon and Netflix, the asset and wealth management industries are prioritizing personalization as a way to retain clients. In 2020, firms will invest in digital tools that reveal what a client wants, when they want it, even before they know they want it.
Client engagement technology offers advisors the ability to facilitate one-to-one or one-to-many relationships and gain insight into when and how a piece of content or message was consumed.
This creates a feedback loop that allows for personalized ongoing communication that is proven to add value. It also shows return on investment in the same way portfolio investment does.
Other digital tools being adopted by the wealth industry, such as more responsive websites, mobile and even robo-advisors, indicate a new era of always-on customer communication that appeals to client preferences and optimizes advisors’ time.
This concept of hyper-personalization, akin to what almost every consumer audience is used to, is being noticed by asset managers as well. Sales and marketing teams are taking advantage of smarter technology that allows them to level-up static marketing materials sent to clients or prospects with little insight into whether they tell the right story.
Similar automation technology makes the creation of quarterly reports and custom pitchbooks easy and effective, saving teams time that is better spent elsewhere.
The best part? Compliance does not have to lose any sleep. Quality digital marketing, client engagement and other fintech tools have caught up to the regulatory environment. Many offer approval workflows, permissions, and the peace of mind that only on-brand and compliant content is being distributed.