Following my participation in Bloomberg’s Winning Strategies and Market Liquidity Conference in London this past fall, I am exploring here some of the challenges the asset management industry faces and what it should do to turn these challenges into opportunities.
As I mentioned in my first conference blog post, regulation will be one of the greatest challenges facing the industry, specifically the demand from regulators for clear and concise information. As a result, the increased demand from regulators will mean the cost of regulation is inevitably going to rise and asset managers have to decide the best way to comply as well as determine the associated costs involved, the number one issue being staffing. They also need to decide what is best left in the hand of external vendors, and in that regard, which vendor addresses best their business needs.
Fundamentally, we are at a regulatory crossroads and this is where the industry needs to make its mark. There is no point in the industry grumbling about regulation after it is implemented: once regulatory policies are decided and implemented, we all have to abide by them, even if they don’t fit our businesses. It is therefore vital for the industry as a whole to focus on relationships with regulators, politicians and other industry bodies – we all have a voice and an opportunity to provide input on policies to ensure they are suitable to the largest number of businesses.
One of the greatest shifts in all industries in recent years has been the leveraging of the internet. Suddenly people have instant access to information on finance, and as a result, they are now savvier when making investment decisions. At the same time, the industry has been slow to embrace this shift, even when social and digital networks have become crucially important and marketing and distribution need to properly and proactively incorporate this trend. If the finance community fails to adapt or does not do it quickly enough, it will face threats from more disruptive enterprises such as Google and Amazon, who already have huge captive audiences. If companies like these should one day decide to move into finance, they would have a ready-made channel to market and distribute to. An example of where this has already happened is with Apple’s new iPhone offering mobile payments, directly challenging the banks for business.
As the channels for the industry change, so does the customer – people are living longer and are more attuned to long term investments and building up a financial base for retirement. These people are looking to UCITS or other investment products that will give them long term options with steady and risk free returns. The crises of the last few years have also led to a demand for more simple and transparent products. Younger investors are also more savvy and inquisitive, questioning the industry more regularly, showing that the relationship of trust has to be rebuilt.
To conclude on an operational point, the industry needs to address its data. Today, many organisations totally underestimate the complexity of data in the industry and with further regulation, these problems will only be compounded. The ability to gather data from a multitude of sources can be demanding, as the data must be reviewed for accuracy and distributed to various channels, often with clients having to report to their own regulator across multiple jurisdictions.
Unbelievably, given all the high profile mistakes in the past few years, many organisations are still using spreadsheets for reporting, something that is error prone and has caused whale-like problems for the industry. The two challenges that stem from these data management problems are investment in infrastructure and choice: companies have to free up resources for investment in IT to keep up with the data requirements, and businesses also need to gauge who the best solution providers are for their needs. Simply throwing in numerous teams to find, clean and distribute data is not cost efficient or sensible when technology providers can offer a better service and for less.
As the world evolves and the attitudes towards investment change accordingly, the industry needs to adapt; a tidal wave of regulation, multiple small vendors, disparate data solutions, the need for clean data and investor demand make this an exciting time to be in the funds industry – but wise long term decisions are needed by all to ensure businesses are operating effectively for customers and themselves alike.