Hume Brophy recently hosted a panel session which brought together executives from across the investment management and fintech sectors to share insights on the challenges of embracing technology and reaching out to millennial investors.
Be it major institutions or private individuals, investor and client demands are changing, and as new disruptors enter the world of finance and investing, our panel discussed the increasing pressure on asset managers to stay relevant and adaptable to new audiences.
The panel consisted of:
- David Ricketts asset management correspondent of Financial News
- Chirag Patel, EMEA head of research and advisory solutions for State Street Global Exchange
- Stephanie Gopalakrisna, Pershing’s head of marketing and global communications for EMEA
- Lory Kehoe, blockchain lab lead and director of strategy and operations for Deloitte
- Luis Rivera, CEO and co-founder of ETFMatic
From blockchain to the Millennial generation
The panel discussed the interlocking issues of technological change and the rising generation of Millennial investors, looking first at the revolutionary blockchain technology.
State Street’s Chirag Patel told the audience that blockchain is generating “introspection” in the asset management industry, although the automation of some manual tasks could create opportunities for investment professionals further up the value chain, working on data analytics rather than simply data entry. But, he said:
“Much of it is currently baby steps. Asset managers are not going to switch entirely their management services to blockchain overnight.”
Deloitte’s Lory Kehoe suggested there was scope for efficiencies in the post-settlement area for asset managers, as well as new opportunities. Schroders, Aberdeen and Henderson, he said, were exploring ways of dealing directly with investors. Indeed, technology could “disintermediate” traditional managers, given that it is now possible to carry out asset management activities without asset managers.
There is a lot of short-term thinking, focusing on tactical wins and month-to-month growth, and a strong lack of longer term strategic planning.
Human factor still vital
Turning to the case of robo-advisers, Pershing’s Stephanie Gopalakrisna said it was important for investment managers to ask themselves what it is they are trying to achieve before diving head first into robo-advice.
She suggested that Millennials may well use robo-advice as a first step into investment, but warned that lack of trust in the industry cast doubt on the viability of a fully automated process. “If something goes wrong, who owns the responsibility? So, you still need a human element”, she said.
In fact, all types of investors continue to prefer dealing with a human being and this human factor is unlikely to go away – at least for now.
“Technology out of control is a scary prospect,” said ETFMatic’s Luis Rivera. “There is a big risk of removing layers of people who protect customers – if, that is, you believe asset managers add value in that way.”
On the vexed question of if or how the investment-management industry can reach out to potential customers among the Millennial generation, the panel warned that they would prove demanding, as Lory Kehoe put it, “Millennials want any device or app to be three things; free, perfect and now.”
However, Millennials do not use technology very differently from the rest of the population. The real issue is not technology but products, specifically the lack of such products dedicated to Millennials. The Millennial generation is interested in social investment and flexibility. But in neither of these areas are Millennials’ concerns being addressed.
Luis Rivera held up the low-cost money-transfer service TransferWise as an example of a brand with a certain “cool” appeal to Millennials, saying many of its users had become fans who promote the company. Nor is it alone: “A lot of start-ups win people’s hearts over.”
On the other hand, Stephanie Gopalakrisna warned: “If, when creating an app, asset management institutions try to make an emotional connection with Millennial customers, they will come across as odd and unnatural.”
There is still a lot of work for the industry to understand this specific (and growing) part of the population, and their unique preferences and behaviours surrounding spending, lifestyle, and finance.
Regulation and RegTech
David Ricketts asked the panel why asset managers have been slow to embrace new technology compared with other industries. The panel’s reflection was that there was a much higher regulatory hurdle that financial institutions must cross as opposed to other industries. Regulators tend to want to see technologies reach a certain stage of maturity before allowing them to be used to distribute financial products.
For Stephanie Gopalakrisna, a big part of the problem also involves legacy systems, with institutions selecting a front-end technical solution and then trying to plug it into their existing system. “As an industry, we are not very nimble.”
Lory Kehoe said that in both Regtech – a subclass of fintech using information technology for regulatory monitoring, reporting and compliance – and fintech, the best companies go after a relatively small problem and deal with it better than anyone else. In Regtech, the idea is to create a “point and shoot” model that can be endlessly adapted, as opposed to the approach that reacts to each new regulation by starting all over again.
Luis Rivera praised the UK’s Financial Conduct Authority as being “way ahead of other regulators” adding that the regulatory body is leading the market because it is very good at allowing controlled experiments on a small scale to test results and outcomes.
Two years from now
Asked, finally, what would be the likely topics for discussion were the panel to reconvene in two years’ time, Lory Kehoe hoped we would be talking about going from regulation to growth, while Stephanie Gopalakrisna expected that much the same subjects as now would be on the agenda, given the industry currently faces two years of regulatory changes.
Luis Rivera predicted:
“In two years, the dust will have settled. There will be some new players and some extinct players.”
About Hume Brophy’s Financial Services Team
We have a broad financial services clientele, including wealth and asset managers, trade bodies, insurers, banks and banking services providers, professional services firms, hedge funds, fintech firms, investment industry service providers and have a strong track record of success in creating and managing local and international campaigns for clients.
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