How digitisation could transform asset management

Technology offers the asset management sector the opportunity for true transformation. However, a report from Accenture shows that there is still a marked reluctance from many firms to digitise their operations.

The necessary shift encompasses not only the adoption of new tech, but also a complete overhaul of the traditional way of working. Digitising the industry will involve moving to a fully customer-centric mindset. And, as challenging as this is for traditional firms, there is plenty of evidence to show that properly integrating available technology will give asset managers a significant advantage in the market.

Adoption of transformative technology is relatively slow

Traditionally a tightly controlled industry with high margins, asset management is relatively slow to adopt major changes. Some firms are already on the way to understanding the importance of digitisation to their future longevity, but others remain reluctant to implement the necessary changes.

However, the coronavirus pandemic has underlined how vital innovative technology is to business, society and the economy. Without the still relatively revolutionary tech that allows us to use Zoom, PayPal, Apple and Google apps and much more, there is no doubt that the economy would have suffered even more during this unprecedented time of crisis.

And in a world still reeling from the challenges of the pandemic, there is a collective understanding that without technological advancement, companies will not survive. There is now an urgency in the need for asset management to respond to these changes and drive the digitisation of the entire industry.

Shifting focus to a client-centric model

As asset managers, we must shift the focus away from the products to the client. Digital technology allows us to create bespoke solutions for clients tailored specifically to their individual needs. Just as other industries, such as banking and insurance, are using innovative tech to provide personal services shaped by consumer demand, asset management must do the same.

The asset management sector changes constantly, and the rate of change continues to speed up. And while in normal times there is space for a lengthy period of adjustment, I think the impact of the pandemic is forcing change. Firms can be in a sort of limbo, with some new digital models attempting to work alongside traditional models. This results in a framework that is not fully digitised, but also not totally traditional. And while this can work to an extent, ultimately it stifles innovation.

There is still resistance within asset management to fully digitise, but there is a lot of evidence to show why it’s necessary, even before the virus. This report by McKinsey explains how firms that don’t digitise will lose a third of their revenue. A separate report from McKinsey demonstrates that successfully digitised firms can feasibly achieve 51% profit margins (against 30% for the general industry).

The report also demonstrates that digitised asset management firms increased their assets by 6% - twice the industry average. They also show an 11% increase in productivity, 6.3% in market share and an 8.6% excess revenue growth. They also report lower technology costs than the industry average.

Shifting the priority to technological transformation

In 2019, a report shows that digitisation remains the top priority for 80% of asset management firms. We can reasonably assume that the coronavirus pandemic has boosted this number. At the time of the report, only 6% were actively investing into digitising their operations. Around 66% reported that they were in the stages of “getting organised” for digital transformation, and 50% considered themselves led by innovation.

As every industry sector moves to find ways to adequately meet the challenges presented by the virus, and rectify its impact on the economy, it’s clear that digitisation must become the number one priority for every asset management firm. We are living through a prolonged period of volatility and we must be able to provide the kind of flexibility of service that consumers increasingly expect. The only way that asset management can achieve this is through total digital transformation.