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Digitalising the investor experience

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Technology continues to infiltrate every aspect of global business. Not a day goes by where the impact of platforms like Amazon, Facebook etc, isn’t felt by those in the asset management industry. The fact is, investor habits are rapidly changing and the way they choose to invest is beginning to mirror the way they use technology to support all other aspects of their lives, from shopping online to algorithms providing recommendations, personally curated to them, on Netflix.

Technology continues to infiltrate every aspect of global business. Not a day goes by where the impact of platforms like Amazon, Facebook etc, isn’t felt by those in the asset management industry. The fact is, investor habits are rapidly changing and the way they choose to invest is beginning to mirror the way they use technology to support all other aspects of their lives, from shopping online to algorithms providing recommendations, personally curated to them, on Netflix.

This age of digitalisation is just at the cusp of what might be possible. As such, asset managers – both traditional and alternative – cannot afford to sit back and expect that the old fashioned way of servicing investors will suffice. 

With much of the asset management ecosystem now focused on digitalisation and how it can improve the client experience, we are seeing how intelligent data strategies have the potential to shorten onboarding times, increase portfolio transparency, anticipate client needs, ensure greater cybersecurity, and provide a customised experience. 

Managers are not blind to the digitalisation megatrend. They well might have a digital transformation strategy in place but often there exist limiting factors that prevent them from moving forward. While it could be the lack of understanding the technological options available, it could also simply be due to the lack of available budget or lack of senior management buy-in.

“It’s a cultural shift as opposed to just swapping out technology,” says Ross Ellis (pictured), Vice President and Managing Director of the Knowledge Partnership in the Investment Manager Services division at SEI. “It’s understanding how you’ve done things in the past and having a strategic commitment to changing from manual-based workflows to digital.  

“The asset management industry has always been a relationship-based, people oriented industry. Yet with technology, it’s moving things in the opposite direction. It’s about process, transparency, and trusting the system; the irony is, it now frees up resources for managers to perform more higher value relationship-based work for clients.”

Data is the primary force behind the current interest in digital transformation. 

More so than many other types of businesses, asset managers are positioned in a unique position at the nexus of multiple (and massive) data sets. Client data is a key part of the equation, but it is joined by market, economic, and competitive data. The prospect of integrating these data streams in useful ways is what drives companies to transform their businesses into what Deloitte calls “information-centric, analytics-driven, and agile data consumers.”

Probably the biggest issue that managers face, when looking to digitally transform the client experience, is legacy technology. Far from being merely a cost concern, more importantly it’s a case of managers thinking, ‘How do we change our firm at the design level at the same time as running the business?’ It’s akin to building an aircraft while flying it: no easy task! 

The mindset, the skillset, as well as the lack of investment – there’s a lot of things happening at the same time but most people would agree that digitalisation is the future. Asset managers know it’s a place they want to get to, they’re just not sure how best to go about it achieving it. 

According to a recent survey conducted by the asset and wealth management consultancy firm Alpha FMC, despite spending on average GBP15 million a year on digital technology, almost a quarter of asset managers feel their digital maturity is “fragmented” and they are beginning to lag behind other organisations. 

In addition, some 69 per cent of respondents said legacy technology remained the primary obstacle to change, while 62 per cent cited the need for a widespread change in company culture and mindset.

At the national level, countries like Switzerland are really pushing the digital agenda. Finma, the Swiss financial regulator, is committed to pushing itself outside of its comfort zone, because comfort zones are the “antithesis of innovation,” said Mark Branson, Finma’s Chief Executive Officer, in a speech he delivered in London on 13 March 2018. 

Switzerland is fully embracing digitalisation, in particular blockchain technology, because it sees it as a way to transform its financial industry and become a leading light. Asset managers who open their mind to new possibilities will be those who ultimately disrupt the natural order of things, as opposed to waiting to be disrupted. 

One such way is to change their distribution strategy.

Distribution platforms are far more prevalent than they were before. However, if asset managers choose to sell their fund products through a third party, they end up ceding all their influence to the distribution partner and as a result their brand identity gets diminished. 

“As an investor, I’m buying the platform, the technology, the advisor and in the end, I’m buying asset allocation. I’m not looking at the underlying managers. Now, as a manager, how do you deal with that? The relationship is so heavily skewed towards the distributor, how do you position your own product and build your own brand?” questions Ellis. 

While using platforms to sell funds to improve the digital experience might lead to brand diminution, things are never that binary. Few managers are going to rely wholly on platforms. They might elect to sell certain fund products on platforms, and sell other fund products directly to the marketplace. Also, the way a manager showcases his brand with a distributor is very different than how they would do it for the end investor. 

A distributor is probably going to care more about performance attribution, correlations, Sharpe ratios and so, whereas when a manager talks to prospective investors, benchmark performance is not as important as it was before. It is just one attribute, in addition to personal chemistry between the two parties, operational considerations, education transfer etc.

Effective digitalisation cannot happen tactically if transformation is the objective. The experience needs to be understood from the investors’ perspective before changes to systems and processes can be identified, let alone implemented.

When investors join a platform like SoFi, for example, one of just many innovative digital wealth management companies, they become part of a community and the manager’s product is just part of a wider array. Investors enjoy an experience that is more in line with their Facebook experience.

“Investors want to be treated as if the manager knows them personally and knows what their issues are, knows what problems need to be solved, and how their solutions will improve their lives. That’s what platforms like SoFi are now providing, they have so much data on you that it’s as if they know you. It creates a perception that the platform cares about you.

“In that sense, using platforms can help managers improve their brand credentials if they are able to customise the experience that investors are getting,” says Ellis.

For managers who choose not to use platforms, they will need to be mindful of the fact that some investors – be they HNW individuals, family offices – will expect a much higher degree of customer service and a much quicker turnaround. 

“Even if you don’t go through a distributor, you still have to appeal to those investors who are using platforms,” says Ellis.

“The evolution of the customer experience has changed given what’s happening with consumer goods. At the same time, managers are re-evaluating what they do and thinking they need to change from their product-centric distribution strategy to a more holistic client-centric strategy. 

“The more they understand clients, the better able managers will be to give them what they are looking for; and help them with their overarching portfolio objectives. The happier the client is, the more likely they will stay with the manager and buy other products (over time). That’s a lot more cost-effective than having to go out and find new investors.”

As a brief aside, the car insurance industry is using technology to better understand its customers. People can now elect to install a black box recorder in their car that records their driving activity: average speed, how much they brake and so on. Using a suite of algorithms, car insurers develop a richer picture of the individual driver and uses the data to create bespoke insurance policies. Often, this leads to lower annual premiums.

“I could easily see a similar concept being applied to the funds industry. The more you know about the investor, the more you will be able to develop truly customised portfolio solutions. It could be much more custom and much more accurate (as per an investor’s true risk appetite) given the amounts of technology and data that now exist,” states Ellis. 

He caveats the point, however, by saying that a fancy marketing story doesn’t mean anything unless the end investor believes that the fund manager is authentic and has their future in mind. 

The more that the manager and the brand reflects their values, says Ellis, the more they are going to believe that the manager really does understand them. 

“Then you start getting into the realm of predicative analytics where a manager might say, ‘Investor X is going to do this or feel this way, so let’s do something in advance of that happening’. 

“Technology and people combined could make the whole investment experience much more personalised,” adds Ellis.

The extent to which a fund manager develops a digital client experience will, as with most things, be largely driven by the investor. Over the last decade, managers have worked hard to give investors more transparency and more access but investors are getting more sophisticated and continually demanding more.  

A lot of the technology focus has been on the back end, none of which really directly affects the consumer. Today’s hedge fund investor, benefitting from a relatively low volatile yet upward trending market, might say, ‘I’m giving you this much money instead of going somewhere else and buying an index for a couple of basis points. Why should I pay all these fees to you, and not get better analytics or real-time insights on performance?’ 

Ostensibly, those managers who successfully develop a digital investor experience will, like car insurers, get much more granular data on their clients. This could help strip away outlier investors and create a more homogenous pool, where both the manager and the investor pool all share a tighter alignment of interests. Logic would suggest this would then lead to an enhanced client experience.

“I agree it could remove the outliers, but while the investors would be more homogeneous, the solution would be heterogeneous. The manager would know each investor better and, using technology, would be able to give them better solutions. This would create a higher level customer experience, the holy grail,” concludes Ellis.

Read the SEI white paper Digitize the Investor Experience. Select preferred format: US/UK

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