Fund managers are the part of the financial services industry that is most vulnerable to digital disruption, with more than four-fifths (82 per cent) in the Asia-Pacific region saying they will face direct competition from non-traditional market entrants, such as technology firms, according to research by State Street Global Exchange.
This vulnerability, coupled with the tremendous pressure to reduce costs (98 per cent said they were experiencing this), means that managers are reshaping their products to meet client demand for multi-asset, outcome-oriented solutions while continuing to try to boost returns in a low-yield environment.
Dr Kyle Kung, managing director of State Street Global Exchange, who will be speaking at the Investment Management Consultants Association annual conference in November, said technology companies are becoming strong competitors against traditional asset managers.
“Investors are seeking more choice and they will shop around,” Kung said. “In a more open playing field, investors will want more personalisation of services from asset managers.”
The need for technology to compete will lead to a growth in alliances.
“Smaller fund managers will seek out alliances with innovative distribution houses and look to leverage innovative custodians that can provide superior technology platforms and economies of scale to allow them to focus more on running the portfolio management rather than dealing with other business and operational issues.”
On a related point about digital disruption, he saw robo advice that gives programmed guidance on how to rebalance portfolios by purchasing ultra-cheap exchange traded funds through mobile phones as a very feasible disruptor to super funds in the near future.
Many of the technological components are already in existence, with the approach likely to become popular as it will be publicised as being much lower cost than superannuation.
Kung added that other examples of disruptors include digital asset transfer platforms that enable real-time settlement or money exchange (blockchain); personalised or direct investing products (robo advisors); and digital distribution platforms created by technology companies such as the Alibaba Group.
While all of these were a threat, he believes traditional players can use the technology to turn the tables.
“We have been looking at the blockchain technology since April of this year,” he said. “We have installed and run the Ripple software and have pushed cross-border payments through the network with settlement in five seconds. We are also looking into encoding smart contracts and transactions in the blockchain.”
Kung will be presenting the keynote speech Disrupting the disruptors: getting your gloves off to keep up with fintech at the Investment Management Consultants Association annual conference in November.