The buy side is being challenged by disruption in ways that other financial services organizations are not, attendees heard at last year's SS&C 2017 Deliver user conference held in Chicago.
From shrinking margins, consolidation and virtual bots to AI and fintech-driven operations transformation, firms facing this moment require a forward-thinking technology posture of both their C-suite and their major providers in order to identify where the key beneficial areas may lie, and where rearguard action may soon be required.
From active managers’ business models, to people and ops, no area is immune. Experts at Deliver noted at least three different areas that are of particular concern for managers: a 20 percent drop in revenues as a result of more passive investing and in particular exchange-traded fund inflows; robotic process automation (RPAs) that favors virtual bots for redundant tasks like report gathering or research distribution; and transformation in the operating model to creatively tackle sticky challenges like corporate actions, collateral management and valuations.
As a result, there is increasing focus on technology: building out new business capabilities without expanding costs; on outsourcing more of the middle-office operations stack; and on data scientists and big data applications playing an increasingly influential role in strategy. And yet there is no one accepted way to approach these areas. Many buy-side firms are hesitant to do it alone, especially if it isn’t yet viewed as essential within firm culture.
For example, some are looking to bolster revenue by expanding into alternatives and multi-asset product offerings, and frequently do so by considering mergers or acquisitions rather than starting from scratch. The technical footprint “immediately becomes more complex as a result,” said Katherine Pearce, SS&C Advent, VP of product management and solutions consulting. “Ultimately, they need to figure out how they service that broader range of client needs, and with M&A, combining infrastructures while still being able to address the new client service model is challenging.”
From a client servicing standpoint, the new model is down to more granular information—from current portfolio composition, to past interactions and behaviors, to suitability for new products—being made available faster. Accenture executive Bill Beaulieu pointed out that as a result of these new pressures, “the entire [tech] ecosystem at a firm is under examination, both core and ancillary platforms, and data is a critical part of any conversation now. It’s not just a placeholder in the product due diligence conversation as in the past. Each client session today begins by asking: ‘how is data shared?’ It’s a data perspective as much as one of functionality.”
Change: Faster, Wider, More Unpredictable
Last year (2017) was different, the panel said, because firms are asked to be both technologically proactive and reactive. While waves of change in asset management certainly aren’t new, the rate of change grows faster today. Panelists additionally agreed that for technology teams, the range of possible outcomes is both wider and more unpredictable than in the past. Even on the buy side, that has recently given rise to dedicated fintech units, whose sole purpose is to roam the globe and identify opportunities and threats trying to handicap if, where and how they’ll come to fruition. But more so, it means investment houses are keen to engage partners that are both fintech-forward and able to manage technology change for them.
On one hand, there is the acquisitive spirit to respond to as well as the drive to expand into new markets and regions. “It’s a big operational burden to understand regulations in a new region; different opening and closing times, new languages and more operations required closer to real time,” explained Pearce. For many managers, these strategic moves—whether executed by buy or build—tend to introduce complexity that easily outstrips current technical and compliance capabilities, particularly relative to lead time. Certain asset classes and even exchanges may soon demand familiarity with distributed ledger technology for settlement, as well. The ability to react is crucial.
On the other hand, just as firms are shaking up their revenue generators—and in some cases, entire organizations—the old-fashioned way, they are also being asked to do better with internal data, AI, and digitization. Beaulieu pointed out that RPA and AI tools are in relatively early-stage deployment within the asset management industry. Firms with scale and complexity across their operating models are typically focusing on highly manually tasks that will provide an immediate ROI. As confidence grows and more firms embrace these newer technologies, adoption will open the floodgates for just about everything.
A survey of the audience at Deliver proved that analytics—with more than twice the response of any other option—was the area still receiving the most emphasis among managers today. “Analytics, at one time, was just about running portfolio performance; now firms are using it across their organization to track and understand client touchpoints throughout the day, providing a more comprehensive view into how the client is being serviced” Beaulieu said. “Today that data is a key enabler for digital transformation, similar to what robo-advisory is doing for retail. The information will foster deeper engagement with clients,offers richer insights and also provide more targeted solutions when prospecting for new business. Asset managers are striving to advance on the analytics curve and commonly look to firms in other industries such as Google and Amazon as their benchmark. The key is to build a digital footprint looking out five years. It’s all about understanding the needs of your clients and using that data to develop better solutions and enhancing client servicing.”