Investment management: Disruption impact scale
Investment management: Key questions for consideration
Is a new segment of investors emerging as technology advances, and if so, how do I target them?
Will index investing change so significantly (such as micro-indices or crowdsourced indices) that it intersects with some active investing?
How can cognitive computing be used to help manage enterprise risk?
What parts of the investment management value chain will use blockchain first? Core trading or customer records management?
How can human capital be redeployed in the new automated environment?
Fintechs specializing in investment operations will level the playing field.
Competitive balance will shift over time as technology enables small to midsize firms to gain market share.
This will alter competitive dynamics away from process execution to favor more human factors (synthesis and decision making) and encourages greater differentiation among firms.
Advisor Software is a cloud-based offering that provides independent advisers with analytical and relationship management tools formerly available only through the largest wealth management firms.
Technology-enabled investment operations outsourcing will help reduce compliance costs.
As incumbents utilize third parties to improve operations, extended enterprise risk gets more difficult to manage.
Qumram tracks digital interaction between financial services institutions and their clients to ensure compliance with client communications regulations.
Call to action
Team with data collection and analytics providers to improve investment decision- ing as new products, client segments, and regulatory changes emerge. Private equity firms and hedge funds will espe- cially benefit from RegTech development as regulators increase scrutiny.
Increased sophistication of robo-advisers will alter distribution models, forcing fewer traditional advisers to move upmarket.
Robos use cognitive technologies to drive automation of higher-value service, helping them evolve beyond “online brokerage-plus” status.
Regulations (e.g., the Department of Labor’s Fiduciary Rule) will spur growth in robo-advisory offerings as product is decoupled from advice.
Through fintechs like Wealthfront, Motif, and Polly Portfolio, more analytically driven capabilities like bespoke portfolio construction, tax-loss harvesting, and portfolio rebalancing become more broadly available.
Incumbents buy or develop robo-advisers to expand credibility among client segments that prefer this emerging service model.
After only one year in operation, robo offerings from Vanguard and Charles Schwab are now the two largest based on assets under management.
Call to action
Given that many robo-advisers have found customer acquisition to be challenging and expensive, accelerate efforts to acquire or create automated advice capabilities to keep up with regulatory initiatives and to remain competitive in both existing and emerging retail client segments.
Cognitive technologies and automated advice will enable the targeting of new customer segments through lower costs and increased customization.
Market potential will increase as robo platforms enable more sophisticated wealth management services to reach targeted or downmarket segments.
Reliance on defined contribution accounts as a feeder system for many asset managers will decrease as robos drive new segments, such as High Earner Not Rich Yet (HENRYs).
Two new automated advice services targeting women investors–WealthFM and Ellevest–to launch in 2016.38
Retail algorithmic trading, social investing, and IoT will drive customized offerings and new asset classes.
Wikifolio allows traders to convert their bespoke trading strategies into financial products that can be made available to individual investors.
Call to action
Create the ability to optimize offerings that align with cohort wants and needs as a more customized and personal- ized product landscape emerges.
Monitor technological developments in IoT to understand how to develop new markets based on new sources of data
Investors are taking control of their online/mobile experience with a wider array of profes- sional-grade tools.
Investors will increasingly gravitate to firms that provide a more customized, social, and empathetic experience.
Rizm provides sophisticated algorithmic trading capabilities to individual investors, attracting active traders who represent a large share of the online brokerage market.
Incumbents will see increased expense to match the trading and investing tools offered by fintechs.
Incumbents could lose the advice edge to crowd- sourced expert opinion, which will gain quick credibility among certain client segments.
But investors may be overwhelmed by the increased level of advice along with increased churn of entries and exits by individual “experts,” adversely impacting experience.
Call to action
Assess and experiment with the active trader community to see how technologies impact investor expe- rience to prototype future services.
Expense could be a barrier—and rapid cycling may catch some off guard—as customer experience should move faster than distribution changes.
Incumbents’ scale and process advantages are diminished over time as smaller competitors access highly efficient third parties.
Commoditization of formerly high-value advisory services, along with increased outsourcing of process-centric talent, reduces incumbents’ margins and cost advantages.
The blurred line between “active” and “passive” puts additional pressure on traditional active fee levels.
Costs of compliance will likely be reduced after an initial period of investment.
Algo and social technologies appeal to the active trader segment, adversely impacting revenue of online brokerage
Retail algo will force incumbents to invest in a stronger backbone to compete.
Clients will not see a cost reduction until process execution technologies mature further, as these services will provide competitive differentiation initially.
Call to action
Shift focus to more specialized and customized strategies and products and remember to acquire new talent in the front office that can profitably support higher-value service delivery.
Investment managers are increasing the pace of middle- and back-office outsourcing to offload cost/ time-intensive processes.
Greater agility and more instantaneous analysis leads to improved operating and compliance performance.
Boat Services is partnering with the London Stock Exchange to build a multi- asset class trade reporting platform to comply with MiFID-II requirements.
Blockchain technology will gradually be adopted for reconciliation, clearing, and settlement, de- creasing cost and improving accuracy and speed.
Back-office functions like clearing and settlement will accelerate to match speed of trading.
Five major UK asset management firms are partnering to explore potential uses of blockchain technology to reduce trading costs, with savings estimates possibly running into the billions of pounds.
Call to action
Participate in blockchain-based utility plat- forms to initiate technology improvements that capitalize on more secure and straight- through processing.
Create the ability to manage extended enter- prise risk as vertically integrated middle- and back-office infrastructures begin to fragment.