In the short time since our last article on asset management disruption, the world has rapidly changed. With COVID-19 shutting down the global economy, the future of asset management suddenly seems a lot more about short horizons. But we still have to set our sights on what will follow, and the long-term need for industry transformation. Meantime, we’re seeing a few interesting patterns during these chaotic times—for example, the finding that managers of passive funds, in the UK anyway, are experiencing lower outflows than active managers. This may be, in part, because passive managers have put more technological resources into innovating and positioning their product.
This allows them to focus less on jumping from spoke to spoke and therefore stay ahead of the market. In any case, digitizing asset management is still an urgent cause—one on which many asset managers procrastinated. Here we’ll look at how some of the leaders have succeeded by formulating their own digital strategies.
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Leaders’ Approach to Digitizing Asset Management
To many asset managers, digital transformation at best helps to combat rising costs. However, it is clear that market leaders have recognized the vital importance of it to their survival and growth, given the potential for disruptive impact. In the previous article in this series, we discussed some of these external disruptors. Those asset managers that can take a step back and look to develop outcome-based digital strategies using an “outside-in” approach—one that first uses digital technologies to create operational efficiency, and then delivers customized experiences to clients and advisors—will differentiate themselves from competitors and facilitate future growth.
Many asset managers are still relying on infrastructure and technology that dates back decades. For many, there may be a strong case for “greenfield” builds, that make use of entirely new technology. Taking this approach, a technology firm working in partnership with an asset manager could launch a platform-based offering with a core data integration and orchestration layer, combined with a strong analytics environment, and an open application programming interface (API) front-end. The speed of transformation for asset managers migrating to such a platform could be rapid.
Whether a “greenfield” or “brownfield” model (where existing systems are repurposed) to digitizing asset management is pursued, based on the experience of early adopters, it is imperative to have a credible, strategic vision for the future. It’s also necessary to gain differentiation in the holy trinity of innovation, strategy and leadership. A high degree of infrastructure flexibility is required to improve the economics of mass customization. The speed-to-market has to accelerate through the evolution of a single, centralized operating platform. And tools for analytics, risk control, valuation and processing are imperative, as investors’ appetite for a variety of strategies has grown. This is where business leadership kicks in.
Three Characteristics That Digital Leaders Exhibit
Furthermore, digital leaders exhibit three characteristics. First, they have erased the traditional boundaries between their operations and technology groups, combining their budgets and development strategies. Second, they have focused both on reducing costs in legacy areas while simultaneously investing new data, digital capabilities, and talent. Third, they have made their operations and technology capabilities central to their competitive strategies, describing their digital strategies as not only enabling, but creating value.
To consolidate and accelerate their digital transformation, digital leaders took an approach of making the first “at bat” count by taking a journey approach. To convince skeptics in their organizations, many digital leaders have followed the approach of having a signature initiative that would engage many parts of the organization and illustrate a significant difference in change between the old and new worlds. They picked end-to-end journeys that were very visible to begin with, in order to win support. Some examples of this might be institutional client on-boarding or client reporting. Rethinking the entire client journey means involving virtually every part of the organization and demonstrating a tangible difference in the experience as a result.
This approach also helps to codify corporate strategy. After all, digitization is not the “be all and end all”—just an enabler in the delivery of business strategy. Without a clear strategy and a group of far-sighted people committed to delivering it, no digital tool can make much difference, no matter how sophisticated. In the current times as well as those we are facing, a digital strategy is no longer an optional investment for asset managers. The ability to quickly access and deal with data across the entire organization is what will move the winners over the post-COVID-19 finish line.
About the Author
Martijn Moerbeek is group director of Digital Strategy & Innovation at Legal & General, a forward-looking, UK-based financial services and insurance firm managing over $1.4 trillion in assets.