Asset management firms are accelerating their digital transformation, with almost half planning to boost their digital spend in the coming year. The push to digitalise been driven by the rise of low-cost passive investing and digital-first challenger banks, which have squeezed the margins of traditional asset managers.
Alpha FMC recently surveyed 36 asset managers with a collective USD25 trillion in assets under management, and found that almost all, 97 per cent, regard going digital as a top priority.
Most managers, 69 per cent, are already undergoing or recently completed a significant digital transformation.
However, most believe they are not yet fully meeting their clients’ and customers’ ever-shifting digital expectations. Nearly half of asset managers, 45 per cent, plan to increase spending by between 5 and 20 per cent over the next year.
This is on top of budget rises over the last year, as the coronavirus pandemic forced all areas of business to be conducted online, remotely.
“Across the board we have seen managers progress well in shifting to digital and remote ways of delivering services to clients, to respond to the global pandemic,” says Kevin O’Shaughnessy, head of Digital and Agile Transformation at Alpha FMC.
O’Shaughnessy says that asset managers are now thinking about digital as a “core and critical function within the firm”.
He adds: “Those who took the opportunity to build their digital and related data capabilities over the last 16 months, are definitely in a good position to capitalise on this, as we move to a new phase of hybrid working.”
Traditional financial firms like HSBC, UBS, and Vanguard have transformed their operations with a digital-first approach. Vanguard, which has USD7.1 trillion in assets under management, states that around 90 per cent of all its client interaction is digital. “We are, in nature, a digital company,” says the firm’s chief information officer, John Marcante.
Meanwhile, JPMorgan Chase recently announced plans to acquire digital investment platform Nutmeg, as part of an ongoing technology push at the bank. Last year, the US bank said it was putting aside USD10.8 billion to be invested in technology, with a particular focus on fintech.
A recent study by Fenergo found that competition from digital challengers was driving traditional asset managers’ own digital transformations, with 84 per cent of asset managers saying that they had lost investors to digital-first competitors in the 12 months prior to the survey.
According to AlphaFMC’s survey, improving the digital client experience is asset managers’ highest priority for investments. Firms are looking to improve client engagement and satisfaction with these investments, as well as to attract new customers and improve retention.
O’Shaughnessy adds: “As such we will see continued spend in the areas of digital and also how they make best use of the insights and intelligence that can be gathered from the digital footprint that their clients and prospects create.
“As a priority, we expect firms to refresh or revisit their strategies for digital and turn their attention to the organisational question about how digital is set up, owned and executed, to make them ready for what the next 12-18 months has in store.”