Who could live without their smartphone these days? This kind of functionality-rich technology has become so ubiquitous it’s almost impossible to imagine surviving without it. For today’s investment managers, the connectivity and efficiency that a modern technology infrastructure provides is even more mission critical. Why? Because it is the answer to the three great challenges all firms face: regulatory compliance, cost control and service differentiation.
OTC derivatives reform, the latest Ucits, Mifid II, Solvency II, suitability, AIFMD, Fatca, accounting standards changes … the potent cocktail of national, regional and international regulatory initiatives is set to give the investment management industry a major headache for years to come. Worse, it is impossible to predict what new rules or amendments will emerge as regimes evolve.
Having the ability to meet each regulatory requirement, with the minimum of cost and risk, demands a future-proof compliance strategy. And at the heart of that capability is a robust data management infrastructure.
We are already seeing many asset managers starting to gather and store as much data as possible on each client’s profile, objectives and behaviour to meet their suitability obligations and guard against future complaints. But it is not just quantity of data that matters. Rather, the focus must be on an automated, well-structured process that allows you to aggregate and store the right data, and then efficiently manipulate, enrich and report on it.
According to PwC’s latest Annual Global CEO Survey* , 46% of the 155 asset management CEOs who participated said they aim to cut costs in 2015. The report noted that while other financial services sectors have tended to make more use of technology, asset management CEOs are progressively turning to technology to tackle their cost pressures. For instance, 88% of CEOs report their main use for digital technology is to improve operational efficiency.
The problem facing many firms though is their patchwork of legacy technology systems, especially in the middle and back office. Such systems – which tend to have no development roadmap – frequently lack compatibility with other parts of the infrastructure, are ever more costly to maintain and difficult to update. As a result, firms are struggling with inefficient, often manually-intensive processes and workarounds, significant operational risk and high costs.
Furthermore, legacy systems may lack the functionality and flexibility to support firms’ business goals, be that delivering enhanced client service capabilities or exploiting new opportunities, such as entering different product, asset or market segments. Unless these activities are sufficiently automated and scalable, the overhead involved will likely render them uneconomic.
In response, more and more industry participants are turning to standard, third-party applications. Whereas legacy systems’ R&D budgets typically are absorbed in maintenance, buying a professional, standard platform offers the benefits of shared R&D. This investment can then go towards not only maintaining the system, but developing real innovations. For users, this translates into improved functionality, greater business flexibility, reduced operational risk and enhanced profitability.
* 18th Annual Global CEO Survey, PricewaterhouseCoopers, http://www.pwc.com/gx/en/ceo-survey/2015/assets/pwc-18th-annual-global-ceo-survey-jan-2015.pdf
Ultimately, the key differentiators for any investment manager are service quality and investment performance. Here again, technology is vital.
While the consumer technology we take for granted in our everyday lives is seeping into the financial services space, the investment management industry has been somewhat behind the curve. For example, investment managers so far have been cautious on adopting mobile technology. However, pressure from clients and employees is now compelling firms to formulate mobile strategies and policies. Likewise, investment managers are looking to us for more collaborative, social solutions that help them share information more efficiently and improve service levels.
Automated processes and sophisticated solutions can also boost investment performance, by enhancing cost/income ratios and providing fingertip access to critical data and analytics tools, allowing for more informed investment decisions. In addition, technology can enable expansion into new geographies and asset classes – a prime consideration given the ongoing trend towards “hybridisation” and how much incremental fee growth is expected to come from non-traditional asset classes.
Changing technology consumption
Without question, investment managers’ future success will be closely tied to the quality of their technology. For us as vendors, that means working to provide personalisable tools and applications that are as easy to use, intuitive and responsive as we see in the consumer technology arena.
How firms leverage technology is changing too. We continue to see a decided shift from in-house developed systems to standardised platforms, which typically have been installed onsite. Going forwards, we expect a progressive move towards cloud-based solutions.
While there are some lingering concerns over security and control with the cloud, the mood is changing. Certainly the business case is compelling. Historically, technology installations (and to a lesser extent system upgrades) involved significant risks and massive upfront investment. As a result, many firms have become locked in technology stasis, putting off beneficial changes for fear of the disruption, cost and risk involved.
Cloud-based platforms offered by providers with a proven track record of innovation and client support circumvent many of these problems. They can be rapidly and easily deployed and updated, with a pay-as-you-go model that eliminates the upfront investment cost and risk. Users also gain more flexibility to move in and out of markets, switch technology providers, outsource non-core business functions and focus on business growth.
But whichever adoption model wins out, the technology message is clear. As the PwC report points out: “By 2020, technology will have become mission-critical to drive customer engagement, data-mining for information on clients and potential clients, operational efficiency, and regulatory and tax reporting.”
Make sure you don’t get left behind.
Martin Engdal is responsible for strategic positioning of Advent’s solutions in EMEA and for driving business development efforts in Europe, Middle East and Africa.