dusted / 04 January
How has asset management changed?
Long gone are the days when investors would depend on the library to research companies, read financial literature, and look up securities like stock, bonds, and mutual funds. Thankfully, now we have the internet and ever since it went global, new tools have been lining up to disrupt asset management. So how does the modern market differ to previous years, what can we expect in the future, and is it all good news?
The internet has, of course, provided many great advantages for asset managers. You can find online company reports, financial documents can be downloaded, searches can be made based on keywords – the list goes on. There’s no doubt that the age of information (i.e. the digitisation and public release of information) has made it much easier to complete research. With so much data available, new technologies are constantly being developed in order to utilise it.
But the ease with which asset managers can source information has also led to more consumer independence over their financial decisions. By not keeping up to date with technology, many asset managers began to lose market share to businesses with a digital focus. Wealth managers had two choices – get digital or get ready to downsize to a niche market. As the internet became more and more readily available to everyone, an online presence evolved from a business advantage to an essential asset. When the internet became standard on mobile phones, so did consumer capacity to manage their own finances, allowing apps like Nutmeg to take the market by storm, delivering a sobering blow to retail stockbrokers.
The development of these apps led to the rise of robo-advisors and intelligent automation, which threatened asset managers and financial advisors with the same fate as the retail stock brokers. Automated financial advice tools were expected to hit asset management harder than any other industry. The only way to stay at the forefront of the industry was for wealth management firms to offer their own robo-advisors and AI services, encouraging self-service options to those who want it.
Recently, AI and machine learning have become all the more important as asset managers begin to see the value in big data. Analytics using machine learning can be more robust than traditional financial modelling due to the access to streams of global data from social media, corporate press releases, conference call transcripts, and regulatory filings. Data has become so important to asset management firms that migrating systems to remote databases has become a popular way of keeping operational costs down (no longer needing to pay for in-house infrastructure or database administrators) while keeping security and availability of databases high.
A 2017 poll revealed that, of 485 asset and wealth managers, only 27 percent offer robo-advisors, and 31 percent use big data. This is a low percentage considering the trend of big data and high availability and security. For a business to think they don’t need technology to survive in the modern asset management industry is folly, although this doesn’t spell the end for asset managers either. There will always be the need for experienced and talented managers. Technology should be seen not as a competitor to best, but a tool to utilise. Both Google and Facebook have shown an interest in finance or asset management, both of whom are technology experts and known for making technological solutions the norm.
The future of asset management is certainly going to be grounded in technology and big data. This is due to the expectations of customers having greater control of their own finances and the need for firms to reduce costs. Data analytics is going to be the next-generation businesses strategy, with predictive analytics used to forecast opportunities and risk and to generate investment ideas.
Sadly, the enthusiasm for digitisation from asset management firms has been underwhelming, but that doesn’t mean wealth managers should not stay informed and educate themselves. Being savvy with wealth management technology might not be a crucial skill right now, but you can bet your bottom dollar it will be in the near future.
If you have any questions about asset management or are looking for opportunities within the industry, please feel free to get in touch via our contact page.