Digital advances open door to customised approach to asset management

Technology is becoming a real game changer in building a brand, as it enables asset management firms to deliver bespoke marketing solutions and better engage with advisers and end clients. This is leading investment firms to purchase, or partner with, fintechs. 

In the US, large firms such as BlackRock, which acquired FutureAdvisor in 2015 and Invesco, which bought JemStep a year later, offer financial advisers automated advisory portfolio models, generally implemented through ETFs. These digital solutions are particularly cost effective to serve smaller clients.   

“Asset management firms are using digital tools to promote awareness of their brand and connect with advisers,” explains Dennis Gallant, senior analyst at global research and advisory firm Aite Group. “Whilst the service itself is not a money maker, they want to get advisers to use the rest of their business for their more affluent clients.” 

Search for scale

Scale is ultimately what every asset manager is driving for, they want to expand and grow their assets to be more competitive and cost effective. 

The US has a much larger direct distribution market than the UK, and continental Europe in particular, where distribution is mainly through intermediaries. Through digital channels, asset managers also aim to drive client experience, communication and promotion, with the goal of predicting buying and redeeming behaviour. 

In Europe, asset management firms are increasingly using less ‘above the line’ advertising and master brand building and are focusing on digital technologies to deliver mass customisation of service and messages, notes Tony Gaughan, UK investment management and wealth sector leader at Deloitte. 

Partnering with fintechs allows asset management firms to develop app-based tools to target advisers and communicate investment views, economic outlooks or to offer information about portfolio changes in a timely and insightful way. 

“The principle goal is to build a deeper relationship with the intermediary community, and create value,” adds Mr Gaughan. Webinars or roadshows are also favoured means of connecting with clients. 

In Europe, firms such as Invesco, Schroders, or more recently Eurizon Capital, have bought robo-adviser firms or stakes in them, to help intermediaries better serve clients and penetrate new markets.

While BlackRock can afford to charge clients for the use of its front office technology Aladdin, on a standalone basis, given its long track record, other asset management firms tend to include their front office tool as part of a package of services delivered to advisers. The tool may prove an effective means to channels investments into the asset management firm’s own funds, when model portfolios recommended to advisers are applied. 

Operational efficiency

Technology is also increasingly used within asset management firms to improve operational efficiency and lower costs. Assessing the level of technology infrastructure is becoming an increasingly important factor when selecting asset managers. 

Quantitative processes, in particular, need to be backed by strong IT infrastructure and robust algorithms to run models, says Bernard Aybran, CIO for multi-manager portfolios and funds of funds at Invesco. 

Another area where technology makes a big difference is trading, particularly relevant for ETFs and indexed funds, as it can minimise transaction costs. 

AI and big data are increasingly used to improve portfolio management decisions, replacing analysts’ data crunching or paperwork. Fund selection teams’ analysis needs to evolve too, to be able to assess the real impact of technology on investment strategies. 

“Some managers say they use AI as part of stock picking or to improve their investment process, and that brings a lot of value. But when you dig deeper, it is not necessarily the case,” warns Ian Crispo, head of fund selection at Deutsche Bank Wealth Management. 

Technology enables fund managers to improve their portfolio tools, including scenario or risk testing, enhancing their ability to identify areas of weaknesses within their portfolios. 

“Many fund managers are aligned to a particular style or may say they are factor agnostic, and technology really helps them test their portfolio and see if that it is true,” says Emma Wall, head of investment analysis at UK investment platform Hargreaves Lansdown.

Technology also allows better reporting, improving information delivered to clients and fund managers themselves.