Which disruptors should concern us most?

The asset management industry encounters disruption in many forms, often on several fronts at the same time. So this FundForum Asia session began by asking the audience what they saw as the biggest disruptive agent to the industry in Asia. Factors such as fintech, market volatility and artificial intelligence all trailed well behind the top concern, regulation, with nearly half the audience citing this as the biggest disruptor.

Malik Sarwar, Global Head of Sales Management Group, Wealth Management, HSBC admitted he hadn’t been expecting the result. “I’m surprised regulators come out top. I think regulators are not disruptors, they’re change agents, they’re catalysts. Sometimes they get too enthusiastic but after the 2008 global crisis when the world of capitalism as we know it was a hair’s breadth away from melting completely, QE1 saved it. Regulation is good for the industry because it makes the clients more comfortable in dealing with the industry.”

Francis Tjia, Founding Partner & Group CEO, Income Partners Asset Management, agreed that government intervention didn’t have to be negative and came in many forms. “Less than 2 months ago the People’s Bank of China announced an opening up of the domestic bond market to financial institutions globally without any restrictions. The Chinese bond market is $7 trillion. It had previously been virtually completely closed to global investors. This is a major, major disruption but of course any change is an opportunity. The implications are enormous.”

Francis added that with Chinese 10 year bonds yielding 3%, from a global asset allocation perspective, at some point everyone would have to have exposure to Chinese bonds. “This is one of the biggest, largest most disruptive changes for the asset management industry. Whoever is able to capture that opportunity is certainly going to upset the league tables.”

Of course there is plenty of disruption not related to government or regulatory activity. Yoon Ng, Director, Asia Pacific, Spence Johnson, suggested that big data would have a significant impact. “I think the way that we use data, the way that phones collect information has changed dramatically. Look at Uber. It’s meant to be a cab company but actually the main aim of the company itself it to collect data analytics. I think increasingly we’ll see firms being set up not so much for the sole purpose they represent but more for the data aspects.”

Yoon also predicted change in the way asset managers think about their customers. “Traditionally the asset manager sits here with the distributors in the middle and then the customers – so the industry never really sees the customer as the end client. Increasingly, with customer experience changing through apps and social media I think it’s going to change the way they think about who the client really is.”

The panel heard that as well as external factors disrupting the asset management sector, the sector itself could be said to be a disruptor. Katharine Braddick, Director of Financial Services, HM Treasury, said it had played a vital role. “Since the financial crisis we’ve seen a banking sector retrenching, a banking sector in a low interest environment and with new regulatory requirements which is rightsizing its lending and which isn’t playing the role in the economy that it did. The asset management sector globally has stepped into that space and absolutely claimed it. Absolutely made it its own and that’s new. Regulation has enabled that change to take place in way that is safe for consumers and for economies.”

The session concluded with a discussion on the impact of fintech in the asset management sector. Francis Tjia, said that he expected robo-advisors to play an increasing role but that the disruption from fintech would be much less than that from by government activity.

Katharine Braddick suggested that fintech represented a positive disruptive power. “We see fintech as a huge force for innovation and for empowerment of consumers, to give them power over their financial affairs.”

“I have to be a bit sceptical about fintech here,” said Yoon Ng. “Although the robo-advisor industry is growing in assets a lot are not making money and are actually losing money.”

Malik Sarwar ended the session saying that fintech was a key enabler of change. “You get the millennials; you get older people like me participating. That is an opportunity. They’re enablers, so are the regulators. We can be one big happy family so that we can be great again as an industry!”