Since its invention back in the 1990s, digitisation has pervaded its way into every conceivable sector of commerce; none more so than the service industry. In financial services in particular, the rise of digital technologies has dramatically changed the manner in which institutions deliver information to their clients. Retail banks have led the way in this regard; developing a wide range of online services and mobile banking applications that have transformed the way people manage their money – ensuring that they can make payments or transfer funds without ever needing to visit a branch again. Online investment platforms, along with the recent rise of equity crowdfunding sites have democratised and demystified a once intimidating world for the average investor. But while the pace of digitisation has been rapid across so much of the financial services industry, fund and asset managers have been slower to react to the new digital landscape.
“During my 10 years of working within the investment industry, there’s probably one thing that frustrated me more than anything else, and that’s the delivery of fund information to investors”, writes Jeremy Mugridge, Marketing Director at Instinct Studios, a FinTech company that is helping the investment industry implement effective digital strategies. “Years ago the printed fund factsheet ruled the world – two glorious pages of investment enlightenment for the end investor… well perhaps not. Riding on the crest of the digital wave, a new innovation emerged in the form of the factsheet pdf – certainly a credible alternative to paper but hardly an earth shattering development.”
The failure to offer accurate fund information is the next regulatory time bomb waiting to happen
But what frustrates him most is the fact that in 2015 very little has changed. Research by Instinct Studios has revealed that 92 percent of these fund factsheets for some of the UK’s biggest funds contained one-year performance data that was a month and a half out of date.
“Why is it”, asks Mugridge, “that Nike, a sports footwear, apparel and equipment company, can use digital to visualise data in a clearer way than a company that wants me to invest many thousands of pounds into [its] fund[s]?”
It is a question that he and his team are hoping to help answer with their investment information visualisation service, Fund Explorer, which is designed to help investors make better-informed financial decisions and hopefully do away with the antiquated factsheet. Technologies such as this will hopefully help bring the investment industry closer to digital parity with others organisations in the financial services industry.
Digital adoption
The proliferation of smartphones and the general advancement of digital technologies are pushing investors expectations increasingly higher. Investors expect funds to provide services that allow them to consume information in new, innovative ways. The digital movement has taken a little longer to take hold in the investment industry, but as clients grow more accustomed to the digital landscape and a new generation of investors join the market, the requirement for funds to offer a more sophisticated digital offering grows. The application of digital technologies, therefore, is essential if firms want to survive. They must be willing to adopt, evolve and grow their use of these platforms and incorporate these systems into the very heart of how they do business if they hope to cater to the digital appetites of the market.
“Increasingly people want to engage with their investments”, says Tom Hawkins, Head of UK Proposition Marketing at Old Mutual Wealth. “In all areas of life we expect information and data to be readily available to us electronically. This was one of the principles we took into the development of our WealthSelect investment service.”
The ability of digital technologies to better convey information is not just positive for investors. It will also help funds with compliance. From a regulatory standpoint digitisation will assist the investment industry to comply with chapter four of the Financial Conduct Authority’s Conduct of Business (COBS) handbook. COBS 4.2 states, “a firm must ensure that a communication or a financial promotion is clear, fair and not misleading”. While the FCA’s Retail Distribution Review has paved the way for greater transparency, digital technologies provide customers with live investment information, which can be displayed in ways that bring data to life in a way that fund factsheets cannot.
“The failure to offer accurate fund information is the next regulatory time bomb waiting to happen”, says Majid Shabir, founder of Instinct Studios. “The financial services market hasn’t been reacting quickly enough to digital; companies need to be doing more to deliver the kind of digital experiences that customers are already receiving from other industries. We believe Fund Explorer will help empower investors with a new level of knowledge and understanding, by allowing them to peel back layers of financial information whenever and however they want.”
Disruptive forces
Fund houses are clearly aware of their anachronistic practices and working with companies like Instinct Studios is testament to this fact. For some time now, there have been fears from inside the industry about technology companies such as Google or Apple choosing to enter into the market and take advantage of the industry’s technological shortcomings.
“Asset management does need to up its game, as we are lagging behind other sectors in terms of the adoption of digital technology”, said Martin Gilbert, Chief Executive of Aberdeen Asset Management in an interview with the Financial Times. “Increasingly, customers will want to engage and transact with us online via their handsets. We need to learn from other businesses but not just those in IT. Airlines, for example, have successfully transitioned much of the ticketing element of their business online – selection, booking and payment of flights together with the issuing of a ticket via QR codes.”
While it is good to see that investment funds are acknowledging they need to improve their offering to customers, a recent report by Create Research has played down the threat of technology giants shaking up the market. Instead, Amin Rajan, CEO of Create Research and author of the report, believes that any type of digital transformation will need to be led from within the industry.
In the report, titled Why the Internet Titans Will Not Conquer Asset Management, Rajan explains that a Google-like technology giant is unlikely to be able to disrupt the industry’s business model from the outside, as reputation in this industry is everything.
“Asset managers will remain in the driving seat because risk management is in their DNA”, says Rajan. “Investing is a bet on an unknown future: investment products have neither replicable outcomes nor a defined shelf life. In this age of dynamic risk, investors will be unwilling to entrust their money to outsiders without a strong risk culture and an associated brand.”
Outsiders, he contends, will still be able to enter into the industry and make their digital mark on it, but they will not be able to do it without the assistance of well-established brands. Therefore, it is likely that a number of joint ventures or partnerships between large investment organisations and technology companies will start to emerge in the coming years.
Alliances and bedfellows
The report does issue a word of warning about the damaging effect of what he calls DIY digital applications. These applications will allow investors to bypass traditional investment channels, which could hit the industry hard. However, the report argues that the main losers are likely to be registered investment advisors (RIAs) in the US, independent financial advisors in the UK and wealth managers on the Continent.
“Digitisation will demystify their craft and erode their competitive edge. Technology will clearly be the driving force behind such transformational changes. It is also likely to give rise to rather unexpected alliances and bedfellows over this decade”, writes Rajan.
Such an alliance may already be afoot, with Aberdeen Asset Management seeking the counsel of Google in order to help them better server their investors. Rob Sanders, Group Head of Marketing at the fund house told the Financial Times that “the big challenge asset managers face in digitising their business will be customer data. Do we have a full understanding of our customers’ behaviour to communicate to them and service them better? This is something that Aberdeen is focusing on, and we are in dialogue with Google to help us move forward.”
Other fund houses would be wise to do the same, as for the moment at least they find themselves well positioned to fend off potential threats from outsiders. But considering the trend of inaction towards digitising its services, along with the continued prevalence of the fund factsheet, the industry appears to lack the will to evolve. One thing is for sure, however, and that is that technology, whether fund houses recognise it or not, is going shake up the investment industry just as it has done with every other.
