In my daily conversations with the leadership of asset management firms, their urgent need to respond to pervasive disruption is a constant theme. And they know the outcomes of their actions must involve more than realizing cost efficiencies: they also need to execute new strategies at the front-end focused on driving distribution and differentiated products—changes that will require them to embrace technology innovation to improve investment decision-making.

To reap the full benefits from front office transformation projects, the back and middle office must keep pace. But how? To help answer this question, we’ve just released our latest report on how asset managers are reinventing their operations in response to sweeping industry change. I think our report—”Reinventing Operations in Asset Management” published jointly with the Investment Company Institute (ICI)—is interesting reading for everyone in the industry.

Why? Take a couple of the findings. Some 42% of respondents say their operations and technology are not configured to adequately execute their firm’s overall strategy. And asked to name their top operational challenges, the three they mention most frequently are:

  • Supporting complex securities and transactions
  • Managing data to ensure quality, accessibility and trust
  • Addressing the limits of legacy technology

These findings certainly mirror my conversations with our asset management clients.

Balancing today and tomorrow: data at the core

I would add two further thoughts about the challenges that asset managers face today:

  1. Tackling the issues around data is an overarching imperative that’s at the heart of any successful response to disruption.
  2. Beyond the data and technology domain, asset managers who can artfully balance solving for today’s immediate demands with placing the right strategic bets to optimize technology innovation will likely be those sitting on top two to three years out.

Solving immediate need versus building agility into the operating model

What’s the dichotomy? Well, the first part is that asset managers are trying to react to pressing issues and deliver capabilities needed today. In many cases this means dealing with foundational requirements like getting reliable real-time data and ensuring it’s fit for purpose in terms of accuracy and quality. This is an immediate need that many in the industry are still trying to solve.

But, at the same time, asset managers also have to focus on other, equally business-critical priorities. As our report underlines, asset managers are keenly aware of the tech innovations and disruptive competitive changes coming down the pipe: 70% of operations leaders in our study expect artificial intelligence (AI) to deliver the next wave of cost reductions to the industry. So as well as solving today’s problems, firms also need to start building agility into their operating model and technology architectures, which would allow them to harness such disruptions to drive value and growth.

How to translate future disruption into value?

This means asking some searching questions about today’s projects, such as:

  • What kind of data insights will be needed in the future to enable firms to both meet evolving regulatory obligations and drive service innovation?
  • How can firms focus simultaneously on implementing short-term fixes and creating data insights to make controls more predictive in the middle and back office?
  • How will they adapt AI tools from the front office to improve operational risk decisions?

Avoiding getting ‘boxed in’: future-proof the design by building in flexibility

At the heart of all these questions is the conflict between meeting current and future needs. In my view, the key is for firms to avoid focusing myopically on the next problem in front of them. Instead, they should ensure that the actions taken to solve today’s needs—perhaps a change to an organizational structure and/or operating model—don’t box them in when a new capability becomes necessary a year later.

All too often in the past, some asset management firms have built new capabilities and put brick walls around them, only to realize later they’re stuck in a corner and have to rip it all down when things change. One solution is to future-proof the design by building in flexibility.

If asset management firms succeed in doing this, what’s the prize?

What it won’t be is an uptick of 5% or 10% in market share next year. Instead, the payback is that the firm will likely still be in business five years from now. Ask yourself: is your firm equipped to compete in a world where the tech giants might have become the primary distribution vehicle for investment advice and products? If not, then it’s time to start building in the agility to adapt to such a scenario—and help ensure the firm’s survival should it happen.

Regulation and talent: further areas demanding a balanced approach

As asset managers address the dichotomy of today and tomorrow, they’ll also need to strike the right balance in two other areas.

  1. First, innovation and regulation: experience shows that asset management pioneers who are first to market with new digital tools and capabilities may attract the attention of the regulators. However, the growing use of breakthrough technologies like AI, robotic process automation and blockchain can only be sustained if innovation and regulation work in tandem. Ultimately, greater collaboration within the industry as well as between buy side and fintech vendors will drive the technological renaissance for the industry.
  2. Second, talent: asked to specify their firm’s most in-demand capabilities today and in five years’ time, 75% of respondents to our survey cite problem-solving as most important today, while 65% put data science top in five years’ time. But this won’t be a binary shift from one to the other. Firms must think carefully about what re-skilling really means and blend the infusion of data-orientated talent with practitioners who know operations. The art will be striking a balance between upscaling the people who understand the business and integrating the data scientists who need to learn about it. Going too far towards either extreme won’t work.

Preparing for an abstract future: agility is key

Our new report paints a picture of an industry just embarking on a radical reinvention of its operations. To navigate the journey successfully, a key asset for firms will be an ability to pivot wisely, by balancing today’s concrete imperatives with tomorrow’s potential requirements. But, as ever, the future is abstract and uncertain—which is why agility can help ensure the firm isn’t starting from scratch in coping with whatever comes along.

To learn more, read: Reinventing Operations in Asset Management.

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