Calastone: Tech driving change in asset management
17 November 2016 London
Image: Shutterstock
Asset managers must make an effort to monitor and understand new technology developments, and to adopt them “sensibly” according to a report from Calastone.
The report, The accelerating power of technology: lessons for the future of fund distribution, suggested that technology is increasingly driving structural changes in the industry.
It highlighted three major distribution trends to look out for: growth in online platforms and use of robo-advice; competition from non-traditional market entrants; and blockchain, or distributed ledger, technology.
According to the report, regulations such as the second Markets in Financial Instruments Directive (MiFID II) and the Retail Distribution Review, which require investors to pay for advice, mean some retail investors have stopped seeking it altogether.
Using online platforms, investors can outline their risk profiles, net worth and preferred investment strategies, and a robo-advisor will produce a menu of funds based on that criteria.
The report cited a Legg Mason survey, which found that 82 percent of millenials in the US, and 80 percent in the UK, said they trust robo-advice. This figure was 65 percent for the rest of Europe, and the global average was 63 percent.
It suggested that providing accessible investment advice through apps and mobile technology is critical to winning over younger audiences
Additional competition could emerge from non-traditional market entrants, the report suggested, particularly from technology ‘giants’ such as Google, Apple and Alibaba. However it also said: “A full foray into active asset management by any technology giant does not seem imminent.”
Instead, these players are more likely to use their user-base to develop fund distribution franchises.
The report said: “While Google and other technology giants like Facebook are sitting on large cash piles, entering asset management would have associated (and maybe unacceptable) costs and result in them being subject to prudential regulation.”
“This is a problem that has been faced by many challenger banks that have emerged in the UK, which have struggled to attain scale and are constrained by regulatory costs.”
Finally, the report pointed to blockchain technology, suggesting it could have a significant effect on the fund management industry through improving straight-through processing and simplifying reporting, among other things.
However, it suggested that practical uses for the technology could still be a way off. A lack of standardisation, perceived security issues and an inability to work with existing legacy systems still stand in the way of widespread adoption, the report said.
Citing research from State Street, the report said 57 percent of asset managers expect blockchain to be adopted in the investment management space within the next five years, and 42 percent said they think it will achieve scale.
However, 90 percent of asset managers and owners named security as their primary concern around blockchain.
The report also noted the importance of bringing about change, and appointing ‘technologists’ to senior and board level positions, in order to make technology part on the long-term strategic agenda.
The report said: “Technology is going to change the funds industry. It is critical that market participants are receptive to technological trends, and understand the implications that technology will have on their business and strategy. Those organisations that adopt this mantra are most likely to remain relevant. This will require firms to look towards promoting or hiring technologists to ensure their strategies are progressive and forward-thinking.”
“The successful fund managers of the future will be the ones with forward thinking CEOs, who recognise that change is happening in the technology landscape. These CEOs will have the support of boards who possess technology backgrounds.”
Jon Willis, chief commercial officer at Calastone, said: “As a financial technology company with technology at its heart, and with a unique position in the funds industry, the trends we have highlighted in the research are critical.”
“The paper demonstrates the need for a cultural change to ensure technology issues are firmly part of the long-term strategic agenda. Calastone believes that an increased level of technological expertise and understanding of emerging and disruptive technologies is vital for the development and sustainability of the funds industry.”
The report, The accelerating power of technology: lessons for the future of fund distribution, suggested that technology is increasingly driving structural changes in the industry.
It highlighted three major distribution trends to look out for: growth in online platforms and use of robo-advice; competition from non-traditional market entrants; and blockchain, or distributed ledger, technology.
According to the report, regulations such as the second Markets in Financial Instruments Directive (MiFID II) and the Retail Distribution Review, which require investors to pay for advice, mean some retail investors have stopped seeking it altogether.
Using online platforms, investors can outline their risk profiles, net worth and preferred investment strategies, and a robo-advisor will produce a menu of funds based on that criteria.
The report cited a Legg Mason survey, which found that 82 percent of millenials in the US, and 80 percent in the UK, said they trust robo-advice. This figure was 65 percent for the rest of Europe, and the global average was 63 percent.
It suggested that providing accessible investment advice through apps and mobile technology is critical to winning over younger audiences
Additional competition could emerge from non-traditional market entrants, the report suggested, particularly from technology ‘giants’ such as Google, Apple and Alibaba. However it also said: “A full foray into active asset management by any technology giant does not seem imminent.”
Instead, these players are more likely to use their user-base to develop fund distribution franchises.
The report said: “While Google and other technology giants like Facebook are sitting on large cash piles, entering asset management would have associated (and maybe unacceptable) costs and result in them being subject to prudential regulation.”
“This is a problem that has been faced by many challenger banks that have emerged in the UK, which have struggled to attain scale and are constrained by regulatory costs.”
Finally, the report pointed to blockchain technology, suggesting it could have a significant effect on the fund management industry through improving straight-through processing and simplifying reporting, among other things.
However, it suggested that practical uses for the technology could still be a way off. A lack of standardisation, perceived security issues and an inability to work with existing legacy systems still stand in the way of widespread adoption, the report said.
Citing research from State Street, the report said 57 percent of asset managers expect blockchain to be adopted in the investment management space within the next five years, and 42 percent said they think it will achieve scale.
However, 90 percent of asset managers and owners named security as their primary concern around blockchain.
The report also noted the importance of bringing about change, and appointing ‘technologists’ to senior and board level positions, in order to make technology part on the long-term strategic agenda.
The report said: “Technology is going to change the funds industry. It is critical that market participants are receptive to technological trends, and understand the implications that technology will have on their business and strategy. Those organisations that adopt this mantra are most likely to remain relevant. This will require firms to look towards promoting or hiring technologists to ensure their strategies are progressive and forward-thinking.”
“The successful fund managers of the future will be the ones with forward thinking CEOs, who recognise that change is happening in the technology landscape. These CEOs will have the support of boards who possess technology backgrounds.”
Jon Willis, chief commercial officer at Calastone, said: “As a financial technology company with technology at its heart, and with a unique position in the funds industry, the trends we have highlighted in the research are critical.”
“The paper demonstrates the need for a cultural change to ensure technology issues are firmly part of the long-term strategic agenda. Calastone believes that an increased level of technological expertise and understanding of emerging and disruptive technologies is vital for the development and sustainability of the funds industry.”
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