Digital is top priority for asset managers, but change is slowed by legacy IT

08 May 2018 Authored by Consultancy.uk

With digital transformations for business operations increasingly seen as essential to the future prosperity of companies across multiple sectors, eight in every ten firms are prioritising their digital transformation, with 61% stating that they are “getting organised”. However, nearly a quarter still feel that their digital maturity is “frustratingly fragmented” and that they are beginning to lag behind other organisations.

As companies work to make the most of technological innovations, and avoid falling prey to digitally disruptive competitors. An indicator of how pervasive the efforts for digital transformation are across all sectors, is the booming digital transformation consulting market, which is now worth more than $23 billion, or over 15% of the entire consultancy industry, as clients tap firms for support of their overhauls.

Despite vast commitments towards digital technologies, recent studies have shown that in around three quarters of the cases, digitalisation efforts fall short of achieving topline growth. The latest of these studies comes from Alpha FMC, with the consultancy finding that ultimately, despite being a top priority for asset managers, digital transformation in the sector is hamstrung by its legacy IT setups.

How much imporance does your company place on digital change

Alpha FMC surveyed 15 of the largest global asset management firms, collectively holding over £7 trillion in assets under management (AUM). Respondents included a mix of CMO’s, Digital Directors, Chief Digital Officers and Technology Leaders. Of the executives polled, more than 4 in every 10 in asset management said digitalisation is a top priority for them, while a further 36% said that it was gaining importance, and that they have or will soon have multiple digital programmes underway.

As with other industries, the growing fervour for digital seems to grow out of asset management executives’ expectations of the many benefits and opportunities that digital can generate. Across the board, digital was seen as a way of transforming a firm and the way it engages with clients and operates internally, while half of all respondents agreed that their efforts to digitalise were motivated by improving performance.

Kevin O'Shaughnessy, head of digital at Alpha FMC, explained: "The asset management industry is at a key juncture, facing a mix of technological, regulatory and client behavioural shifts. Adopting digital approaches can help them achieve economy of scale and win new mandates."

A further third of respondents said their digital efforts were focused on the way their organisation is designed and the skills they needed. Fewer than 1 in 5 said that their digital efforts were focused on technology only – something which many executives are keen to avoid, as technology for technology’s sake can miss addressing the actual needs of a business, and waste resources in the process.

Benefits and opportunities from digital transformation

77% of respondents felt that digitisation offered the opportunity to create new models for business, and to redesign the way the firm goes to market and operates, with 62% feeling digital technology promoted opportunity in terms of data. Data analytics remain a major way in which firms could better understand market trends and consumer behaviour – offering a large opportunity, should they apply analytics technology adequately in order to examine the vast amounts of data they have access to.

As a result, automation, along with greater levels of self service, and a shift to agile ways of working were seen as priorities for digitisation in asset management, perceived as driving improved productivity by an estimated 46%. There was also a general consensus that investment in digital would create a range of benefits, including an improved level of client engagement, which was cited by 85% of respondents. Increased AUM/Revenue resulting from this was the second most popular benefit, which is correlated to the improved engagement with clients.

O'Shaughnessy: "The asset management industry is at a key juncture, facing a mix of technological, regulatory and client behavioural shifts. Adopting digital approaches can help them achieve economy of scale and win new mandates."

He added, "Asset managers know the commercial benefits to be derived from digital investment, covering both the ability to acquire and retain clients but also the impact of improved client satisfaction, both of which lead to increased AUM and revenue."

What are the main challenges to driving your digital agenda

Digital maturity

Despite the pouring of resources into digital transformation efforts, and great expectations for what that might yield, however, most firms are still busy with basics. When executives were asked at what stage their digital maturity was, 62% felt that they were just at the “Getting Organised” stage. This nascent stage of digital strategy the majority find themselves in is characterised by initiatives beginning to be joined up and in house capability still being developed. In other words, many companies are still trying to move beyond their legacy IT infrastructure.

Over a fifth of executives meanwhile felt that their firm’s strategy was still frustratingly fragmented – suggesting overcoming these issues is easier said than done. This feeling was so prevalent that not a single firm felt they were a digital innovator – suggesting even the 8% who were “happy with the basics” had so far also done little to move beyond them, and unlock the true potential of digital technology.

According to Alpha FMC’s research, one way of accelerating this process is through collaborating with FinTechs. FinTechs have long been touted as having massive potential to disrupt the banking sector – something which banks eventually circumnavigated by working with FinTechs, rather than competing with them. As a result, the banking sector is at the forefront of industrial digital maturity – something that asset managers could certainly look to learn from.

Collaboration with FinTechs in the Asset Management

Contrary to this, at present Identifying and integrating FinTech/RegTech solutions in asset management remains a low priority. Just 15% of those polled said it was key priority, contrasting with 77% who named ‘improving the client experience’. This neglects the fact that these new technologies can in fact be used to improve client experience.

As a result, a resounding majority of those questioned have not invested in FinTechs partnerships to date. Just under a third of asset management firms have invested in external FinTech and digital solutions, while 69% of respondents have not invested in FinTech and do not have plans to do so

Commenting on the progress of the asset management sector in adopting digital technologies, O'Shaughnessy said, “How to remain ahead of the curve, is now a board level agenda item for many firms. However, the industry is still experiencing growing pains in its digital journey. The study shows firms are currently focused on defining the role of digital, setting up the functions and investing in core digital enablers such as content management, social, analytics and data capability.”

Across the board, asset managers are optimistic about growthexpecting steady growth over the coming three years, according to a study by PwC.

Related: Strategic priorities for the asset and wealth management industry.

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