Clients’ expectations of service industries have changed dramatically in a relatively short space of time. For financial services, lengthy paperwork was the norm just a few years ago. However, developments such as facial recognition software and app-based technology have transformed this industry.
In fact, so important has client experience become that people are willing to pay a premium on products and services where they receive a better experience. They also have greater loyalty towards these businesses.
What drives a better client experience?
Automation and the use of other technologies, such as artificial intelligence and machine learning techniques, is transforming many industries. With the help of algorithms, we can effortlessly browse holidays, buy groceries and compare insurance products. These powerful computer rules transform data about our choices and preferences into useful information. As such, algorithms have enabled businesses to be much more efficient in offering consumers access to the services or products they want.
What does this mean for asset managers?
Can asset managers offer the same experience?
As people take more control of their savings through online investment and pension platforms, they will increasingly expect a more streamlined service. Naturally, we are cognisant of the complexity of the investment industry. The highly regulated environment necessitates the need for certain procedures aimed at guarding investors’ capital. Nonetheless, there are still efficiencies to be gained throughout the entire process.
We’re all familiar with challenger banks that have shown it is possible to do away with lengthy forms and manual processes, while still complying with the regulation that protects consumers.
In some regards, asset managers have embraced automation. For example, in the last decade, trading, reconciliation and settlement have been transformed from a mainly manual process to being almost fully automated, using structured message formats and digital self-service delivery. Automation has brought efficiency, lower risk and a reduced likelihood of errors. This ultimately means lower fees for the end investor. However, there are still many manual processes in day-to-day fund management operations that are yet to be eliminated.
Some of the key drivers of change include:
- Significant merger and acquisition (M&A) activity: the asset management industry has seen major consolidation in recent years. Just in the first half of this year the US saw 145 transaction announcements in the asset and wealth industry. Similar trends have played out globally, leading many businesses to have multiple operating systems that do not necessarily integrate efficiently. This causes extra cost for asset managers.
- Increasingly globalised operations: fund managers need one system that can work across their businesses, regardless of where funds are domiciled.
- Growth of alternatives: the asset class is becoming increasingly important, representing the largest revenue pool for asset managers – with more than 40% of revenues – even though it is only 15% of global assets under management. The different requirements of these assets add pressure to administrative systems.
- Re-platforming risk: there is a growing need for low-cost, efficient operations transformation projects that can serve long-term needs, or that can be flexible for changing needs as firms grow.
Research has indicated that a significant proportion of currently manual processes could be automated by new technology within the next decade. Around 80% of “traditional processes” and 30% of outsourced IT functions could be automated, according to Morgan Stanley.
The signals towards change are positive: four in five asset managers rank digital capabilities as a “top or high priority” according to consultancy Alpha FMC.
The industry has some way to go, but the abovementioned factors have made the need for change more urgent.
The technological opportunity
Embracing the new world will require investment in new technologies, but in order to attract and retain business, investment managers must deliver a service their clients have become accustomed to. This includes access to real-time information anywhere, and also complete reliance on accuracy and performance. Clients will not accept mistakes or downtime. Instead, they will invest elsewhere where convenience and speed are the order of the day.
In our view, the investment is undoubtedly worth it for the many benefits of upgrading, as automation and other forms of new technology bring with them significant opportunities for streamlining operations and reducing risk.