How do we professionally prepare for the world of tomorrow? Is using leveraging data and transforming business digitally a race we are competing to win? In our latest thought leadership, Howard Mannion, EY UK Wealth and Asset Management Advisory Partner, examines where we are at.
How do we make certain we exist tomorrow? That's the fundamental question the executive boards of many asset management firms are asking today.
Many seem to believe that the answer is to adopt so-called 'disruptive technologies' that promise to help solve business challenges faster, make organizations smarter and make the overall operating model more efficient.
Yet, this approach is the digital transformation equivalent of an architect designing a spectacular roof without considering the need for a solid foundation and supporting structure.
The call for a solid infrastructure to support digital transformation
Whether the focus is on better business models, seamless customer experiences, robust regulatory reporting or effective protection from cyber risks, the foundation stone and, therefore, the best starting point for digital transformation is data.
Technology may be at the heart of transformation in the asset management industry, but without data, there can be no investor insight, regulatory report or investment analysis.
The future of asset management
I believe that in the next few years, asset managers will invest heavily in advanced data and analytics capabilities.
Why? Well, I see data and analytics as underpinning all the new technologies that are transforming asset management. There are four simple reasons why:
1. Asset managers need to meet increased client expectations.
They can do this by:
- Creating a single understanding of their customer base and business stakeholders
- Delivering data and analytics to customers on their terms (reports, digital and application programming interfaces (APIs).
- Enabling sales staff to leverage customer insights and interactions
Yet, EY research shows that only 41% of financial services companies currently have 'very good' data-driven insights into customers.1
2. Asset managers need to meet regulatory pressure.
They can do this by:
- Creating a strategic platform for their regulatory reporting
- Delivering advanced analytics for risk compliance and operational monitoring
- Being ready for the future of ?open? asset management
Over two-thirds (67%) currently have a strong supply of quality data for data modeling, back-testing or stress testing, yet 33% still have challenges in recording audit trails and storing data.2
3. Asset managers need to create a scalable and efficient operating model.
They can do this by:
- Consolidating business functions onto core platforms (Customer relationship management (CRM), Investments, Risk, Finance and Accounting).
- Establishing an enterprise data platform.
- Setting up data office, enterprise data governance and data quality measurement.
- Changing mindsets and establishing data culture throughout the business.
- Understanding their profitability drivers across the fund, product and client.
- Enabling product and distribution teams to focus on the most profitable clients and services.
Yet, only 54% of asset managers are now using 'big data' facilities, such as data lakes,² and only 49% of financial services companies say they regularly conduct data quality audits.¹
4. Asset managers need to enhance investment performance.
They can do this by:
- Delivering enhanced data and analytics tools to investment professionals
- Enabling efficient research and analytics through machine learning and alternative data sets.
Yet, EY research shows that only 36% of asset managers are interested in exploring artificial intelligence (AI) and machine learning.² Conversely, 76% of investors think it's important that their fund managers use next-generation data to support their investment process.³
The race to digital transformation: data leaders versus digital losers
There is a huge opportunity now available for asset managers, from acknowledging the importance of data as an asset to the deployment of sophisticated analytics to realize the benefits of that asset.
Insurers and banks are already some way along this journey. They're realizing that their insight into customer data is an asset that might depreciate in value if the big data players, such as Amazon and Google, ever decided to branch out into financial services.
They know they have time to act on their advantage over other financial services players, before disruption might be forced on them.
While banks already know the role that data and analytics are now playing in their businesses, asset managers have been slower to see data as an asset rather than as a risk.
Why 2019 will be different
No one really doubts that digital transformation is a strategic imperative for wealth managers and asset managers. Customers demand it, regulators expect it and competitors are doing it.
However, I believe that most asset managers are only at the start of their transformation journey.
For example, 85% of leading financial services firms say that data is their most valuable strategic asset,¹ but only 16% consider themselves 'excellent' at extracting value from their data today.¹
I think the industry is now reaching an inflection point where we will see a bifurcation between the digital haves and have-nots.
In other words, there will be those who invest in data and analytics capabilities to support their future ability to service clients, be compliant with regulation, build future-proof operating models and deliver returns.
And then there will be those who don't, and who therefore ultimately stand to lose market share to the digital winner.
The future digital winners will be those asset managers who use today to address their data issues as they deliver upon their strategic objectives.
That means, there is now a significant market opportunity for asset managers to better serve investors, reduce cost, improve returns and manage risk through strategic implementation of next-generation data management.
Revenues, risk and reducing cost
Creating a foundation data platform is the starting point for improved customer experience and investment insights. In 2019, the epiphany that data and analytics are important enablers for growing asset management revenues, reducing cost and managing risks more efficiently, is coinciding with the increasing availability of industry-specific data lakes and analytics.
This unstructured data - which can include anything from social media inputs to audio and video streams - has proved particularly challenging to digest. Yet, it's a rich resource for those companies with the skills and technologies required to collect this information and to extract value from it.
The key is to take a strategic approach and combine disparate structured and unstructured information from across an organization's system and data landscape, to enable holistic data access, analytics and insight.
This plan of action often sees asset managers consolidate various platforms, providing the potential for cost savings as a side effect. Now that various disparate systems are coming together, asset managers are taking a crucial step toward using their data more intelligently to create value.
With an industry-tailored data lake and analytics, all information from a single source can be combined and we will be able to combine unstructured demographic information with structured finance data. Then, we can use analytics to answer questions such as, what's next?
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
1 The science of winning in financial services, EYGM Limited, 2015.
2 Risk and regulation in a digitalized world: a survey for UK asset managers, EYGM Limited, 2018.
3 At the tipping point: disruption and the pace of change in the alternative asset management industry, 2018 Global Alternative Fund Survey, EYGM Limited, 2018.