The FIFA World Cup has generated a lot of compulsive viewing including one unique first – all games broadcast on UK commercial television carried at half time the Hitachi DAC advert for a fridge equipped with blockchain. The claim is you can use this technology to manage your home consumption and expenditure seamlessly by talking with your devices, getting devices talking to each other, and doing a whole bunch of other cool things.
We know the retail, transport and consumer durables sectors are being disrupted, and most would say for better more than for worse. Does the investment industry too have an ‘Uber moment’ on the way? Is there a transformation coming in business model with simplicity, speed, scale and synergy advantages after which nothing is the same?
Asset management is one of the last industries to be disrupted. That is because it is an industry that depends so heavily on regulation, complexity and long-term experiences. It does not lend itself easily to the worldwide wish for simple and speedy that is leading most disruption. But the Uber moment is nonetheless coming to asset management sometime soon.
As with other industries, new technology in investment covers a spectrum: big data and AI applied to predictive and prescriptive analytics; cloud computing for improved flexibility and security; and the Internet of Things connecting all facets and devices of our personal lives including our financial lives.
As with other industries, this technology will support greater transparency of value, better utilisation of assets and lower costs. And it can deliver to investment clients – particularly in DC and retail investing – improvement in ease of use that are long overdue. These are the gaps which seem likely to produce the Uber moment.
If those are the challenges, these are the responses
What can investment firms do to position themselves well through these turbulent times? That is addressed in Investment Firm of the Future a study I co-authored for the CFA Institute. In it we discuss the disruptive implications of unprecedented monetary and investment conditions, set against a back-drop of social- and technology- driven change. It explains how firms will face trouble unless they are pro-active in defusing disruptive threats and embracing disruptive opportunities.
To deal with disruption investment firms need to adapt in a number of areas:
– a big step up in understanding client needs and wants through customer data driven process, in which systematic data gathering, customized algorithms and Amazon type recommendation engines play a big part
– a big step up in communication, particularly in exploring risk as a unique client feeling
– a person plus technology delivered experience – think of combining AI processes with skilled human engagement to build maximum competency and trust – similar to the collaborative robot or ‘cobot’ (see the FT leader ‘Ceding powers of decision to AI presents a paradox’. ‘This will require a framework that enables humans to make full use of these powerful tools, while ensuring they are directed to the best ends’).
The acid test of successfully making these shifts is to build sustainable trust with clients. This can be reinforced through a strong and authentic brand. Can technology companies challenge traditional investment firms on their home turf here? This is not yet clear. Technology brands work well with the tangible and the immediate, they don’t translate so well into the slow to emerge outcomes in asset management contexts. This may explain some of the reluctance of the technology titans to step into asset management.
The CFA research sets out six attributes needed on a checklist for investment firm success:
- Strong culture. While recognizing with culture one size does not fit all, end investors crave a culture of professionalism in which commitment to competency and client loyalty are critical values
- Technology commitment. A commitment to the considerable time and money necessary to introduce better technology
- Technology-savvy leaders. This is a very human craft with T-shaped people – well-qualified all-rounders – particularly suited. See ‘Humans will not become obsolete among the rise of the machines’
- Well-positioned business models. Firms need to align themselves to benefit from the new trends in asset management in which the biggest growth area is in investment solutions.
- Recognition of comparative advantage. Firms need to be good at knowing what they are good at. And consistent with that, collaborating with or outsourcing to partners.
- Dealing with change. This involves the ability to step away from legacy systems and thinking and to reject the natural temptation to deny the issues.
This new world certainly favours large investment firms with scale. But it also favours smaller firms with agility and focus. Most of all it favours firms that have thought deeply about the new terrain they will be traversing and have a vision, strategy and culture ready for it.