High net worth advisory firms are ahead of fund managers in the digital transformation of business practices, according to a new survey by UK-based Create Research.
The ‘Digitisation of asset and wealth management: promise and pitfalls’ report published last week found upper-end financial adviser firms (described as wealth managers in the survey) “are ahead of asset managers in the adoption cycle in virtually all digital innovations”.
“Not only are wealth managers’ adoption rates higher than asset managers’, but more of them are also at the decision-making stage than asset managers, most of whom are still at the awareness raising stage for all innovations save social media,” the Create study says.
For example, the report, based on a survey of 458 asset and wealth managers across 37 jurisdictions (including Australia and NZ) and representing about US$32 trillion, found 56 per cent of wealth management firms were already implementing digital investment platform solutions compared to just 36 per cent of asset managers.
However, both groups were similarly hesitant about implementing blockchain and cognitive technology (or artificial intelligence) within their businesses.
“Whereas 54% of the survey respondents have adopted social media, only 6% have adopted blockchain, most of whom are subsidiaries of the large banks that are part of the global consortiums developing the new generation of blockchain,” the report says.
Legacy IT systems and the ‘innovators dilemma’ (where benefits may not accrue to early adopters of technology) were cited by 74 per cent and 63 per cent of respondents, respectively, as drags on the digitisation process.
The survey also found the two sub-groups of respondents had a different view on how digital technology would affect their businesses.
“First, full disruption is likely in wealth rather than asset management (31% vs 19%),” the Create report says. “Second, in contrast, partial disruption is more likely in asset than wealth management (61% vs 46%). Their relative differences in direct exposure to end-client will be the key contributory factor.”
About 20 per cent of both groups said digitisation would affect their businesses only incrementally over the next 10 years while just 2-3 per cent of all respondents expected ‘business as usual’ over the same period.
Accelerated competition and ‘industrialisation’ were rated as the biggest downsides of digitisation, the survey found, while opinions were divided on how technology would affect the bottom line: about 46 per cent expect profitability to fall as a result of technological innovation, and 40 per cent picking margins to stay the same or rise.
“On the plus side, survey respondents believe that digitisation will potentially deliver a number of benefits to clients: better value for money, better engagement and lower fees and charges.
It will also deliver benefits to asset and wealth managers: higher efficiencies in the back office, fewer staff and changes in the skills sets of staff,” the study says.
Despite the sometimes-ambivalent attitude to digitisation, the report says a number of underlying factors would inexorably drive further technological innovation for the asset and wealth management industries.
“Five trends were identified by at least one in every three respondents,” the Create report says, namely:
- rising pressure on fees, charges and costs (77%)
- rising share of passive funds (60%)
- a rising new generation of end-investors (44%)
- rising demand for blockbuster products (42%)
- rising share of total investible assets held by mass market investors (33%).
“One thing is for sure: asset and wealth management are set to decouple from a stable past and re-anchor to a disruptive future,” the report says.
Create Research is a UK-based organisation headed by Professor Amin Rajan.