Could the asset manager of the future be a robot from Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) or a drone stock broker compiled from Amazon.com, Inc. (NASDAQ:AMZN)’s recommendation algorithms? Yes, according to a new study from KPMG, and human asset managers are behind the curve to embrace technology.
The report predicted that “most people will buy investment products on-line rather than through a face-to-face adviser. Customers will also buy based on their own research supported by crowd-sourced opinions on ‘TripAdvisor type’ websites.” Such websites are known for their lack of human interaction.
Asset managers of tomorrow must focus on building better relation with clients
While it made this prediction, it also contradicted its findings. “The successful asset managers of tomorrow must focus on building cradle-to-grave relationships with a dramatically different and more diverse client base from today, which includes much younger investors,” but didn’t address the conflict in “building relationships” and creating a self-selection brokerage model. The self-selection brokerage model has been discussed in depth among algorithmic traders, as the process of making recommendations for investors can be very formulaic and might not require as much human touch as is currently the case. This said, the trust built up in a relationship is something that computers have yet to replace..
The global asset management industry will radically transform over the next 15 years due to seismic shifts in client demographics, technology and changing social values and behaviors, the report concluded. The firm predicts that “by 2030 the client base of a typical asset manager will be completely different to today’s, as generation X approaches retirement, generation Y matures and middle classes in emerging countries grow.”
Demographics are changing across the globe
“Demographics are changing. People are living longer and taking greater responsibility for their own retirement planning. Younger generations will save more as they see their parents run out of money in retirement,” said Tim Brown, global head of investment management at KPMG.”We also expect to see a significant boost of new money from the growing middle classes in China, Mexico, India, Nigeria and other developing economies over the next 15 years.”
The next asset manager powerhouse
The report noted that legacy financial advisory firms face significant overhead challenges. “New entrants, who aren’t plagued by legacy issues and outdated clunky systems, will thrive as they can move quickly to implement more relevant digital and data strategies,” said Ian Smith, financial services strategy partner at KPMG. “Trusted brands that resonate and appeal to a more diverse client base, as well as the younger generation, may be able to build scale quickly. We could see the Apples, Googles or large retailers of the world becoming the next big powerhouses in investment management. As such, we expect to see mass consolidation in the industry and predict that within 15 years there will be half the number of players currently in the market.”