Asset Management Industry revolution is coming

Technology Brings New Opportunities to Asset Managers. Technological innovation occasionally requires radical shifts to various types of business models in order to ensure relevancy and the asset management industry is no different. Changes caused by technological innovation include new products such as index and managed ETFs, on-line discount brokerages, 24/7 access, high frequency trading among others, have revolutionized the industry. Change is inevitable and for the ones that are able to embrace it, untold opportunity await.

Not all in the industry agree that change is good. A recent push by various large tech companies into consumer based financial services has sparked fears among many asset managers that there is potential for these giants to also move into asset management. If they do, there is significant potential that it could destroy the livelihoods of many entrenchment investment companies. These fears are stoked by the recent move by Facebook to launch an online money transfer service in Europe, the launch of Google Wallet in 2009 and the possibility that the 500 pound technology gorilla, Apple, will plan to enter the mobile payment industry based off of comments made by Tim Cook, Apple’s chief executive during an earnings call in January 2014.

Currently these tech giants are focusing on consumer based financial services, but that could quickly change. In fact the cavern to move from consumer based financial services to pure asset management may not be as wide and deep as people may think. Chinese e-commerce giant Alibaba’s third-party payment affiliate, Alipay.com began offering a money market type product in June 2013 which has garnered over 81 million investors. In October 2013, Baidu joined forces with China Asset Management when it launched its Baidu Finance Center in October 2013 and in January 2014 Tencent, the fourth-largest internet company in the world, launched a savings product to its 270+ million global user group. The significant activity and growth in the Asian market is driven by the regulatory cap on interest rates that traditional Chinese banks can offer which make these types of alternatives very attractive to consumers.

With all these potential industry changes, what should asset managers do to remain competitive and relevant? There is little doubt that technological innovation will also lead to significant opportunities for asset managers to expand their services and interact with their clients on a nearly real time basis as well. This could lead to better returns for clients and higher fees for asset managers. To leverage these new innovations, asset managers need to embrace technological change and adopt new technology that will allow them to interact with their clients the way they want, when they want and provide the transparency that is so often sought by their investors. Regardless of the plans or actions of the various tech titans technology can never supplant the heart of the asset management industry which is its ability to evaluate and analyze various investments based on a risk/return profile and then combine them into a portfolio that minimize volatility while maximizes return.

The search for alpha is the art of the game in the asset management industry and if it is combined with new technology that provides better platforms, transparency, distribution channels and markets, the opportunities are endless. Share this article with your asset mangers colleagues or clients: Don’t fear technology, embrace it.

One response to “Asset Management Industry revolution is coming

  1. Pingback: UBS: King of Asset Management | Alpha Banker·

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