The global financial crisis of 2008 and 2009 brought the asset management industry to its knees. What followed was a period of profound transformation marked by significant regulatory reform and the rise of passive investment strategies. The industry survived, but more change is on the horizon. Today, firms are dealing with disruptive technology, product innovation and significant fee pressure.
Breaking the mold with disruptive technology
In recent years, we’ve seen disruptive technology upend industries like publishing and travel when they failed to keep up with digital innovation. Is asset management next? The rise of blockchain combined with the success of Alibaba’s new mutual fund in China, and online wealth advisors like Wealthfront and Betterment, suggest yes.
Asset management firms face an uphill battle when it comes to leading their own disruption. Most firms operate with an outdated technical architecture and limited data management capabilities. Based on the experiences of other industries, we know that disruptive technology often emerges from small and nimble enterprises that start from scratch and have a specific focus and a client-centric perspective.
Using product innovation to evolve with clients
As the demographics of the industry’s client base evolves, so too must the product and service offerings of asset management firms. Before long, millennials will hold the majority of wealth—and the power to choose how that wealth is invested.
This generation is diverse and well educated. They grew up using the Internet, so they are comfortable conducting business online and expect immediate access to information. Their entry into adulthood coincided with the failure of multiple financial institutions, making them skeptical of the industry and more likely to take on wealth management on their own. In short, millennials are not their parents.
What will determine success?
Asset management firms that are able to embrace and leverage disruptive technologies while also bringing new products and multi-asset strategies to the market will likely lead the pack. Those that master at least one of these might still be in the game. But what does that take?
Firms must be:
- Flexible and agile: Speed to market is key. If your firm is not first to market, you must be able to identify and launch emerging products quickly.
- Efficient and scalable: Consolidating patchwork legacy technology and transitioning to an integrated global platform is essential. Otherwise, your firm’s inefficiencies will multiply as operations fail to scale up.
- Data-driven: As an established firm, you have access to volumes of data—and the valuable insights they contain—that new market participants do not. Make your data work for you.
The asset management industry is facing new competitors, new technologies, and new clients with new needs. While the size and complexity of many asset management firms can make change difficult, their access to data can be a source of competitive advantage. The outcome is unclear: It’s up to individual firms to determine whether they will remain stuck in a cycle of reactive behavior or evolve into nimble industry leaders.
For more on innovation and disruption in the asset management industry, email me directly.