Asset Managers Finally See the Need for Automation – CDOTrends

The global asset management industry currently manages around USD100 trillion for clients. Its a highly competitive industry with a lot at stake.

Given the industry's sheer size, it is unsurprising that technological advantage has become a significant differentiator. Technology touches so much of the industry, from analyzing and modeling stocks and markets to trading to back office administration.

Technology also delivers scale and enables asset managers to reach their clients. This is very much the case in Australia, where the superannuation or pensions industry is in the throes of a significant consolidation with ongoing mergers between the funds. At the same time, they are differentiating themselves on the experience they give to members.

The largest fund, for example, is AustralianSuper which has 2.3 million members and more than AUD233 billion under management. One of the reasons given for the funds spate of mergers in recent years is that making the fund bigger will deliver economies of scale, enabling technology investments to engage in a more meaningful way with members.

It sounds counterintuitive, but the rationale is that the bigger the fund, the more likely it will be able to deliver more appropriate and tailored advice to members because the fund will have the data systems in place to drive this. As many of these mergers are yet to be bedded down, the jury is still out on whether this line of thinking is correct.

The long and winding road to automation

One technology that is particularly relevant in asset management and administration is automation. But according to the global funds network Calastone, the implementation of automation in funds management is lagging.

Calastone has just sent out a global survey to understand the main drivers of automation and how these differ between the regions. It looks at several key drivers, from regulation to client service and cost, to understand the priorities across operational departments.

The argument for greater process automation in asset management has long-since been won, but the industry continues to walk a long and winding road towards the high levels of automation and straight-through processing that are desired, Calastone says.

However, in recent years, the pace has quickened, thanks in large part to fintech.

Calastone undertakes these surveys regularly, and the last ones in 2020 and 2021 hinted at what the current exercise might find: that despite its size, the global asset management eco-system is still highly fragmented and often relies on outdated technologies, and manual processing remains prevalent.

It is crucial that those which have fallen behind embrace digitalization so they can compete in the future

Automation is lagging across all five major markets surveyed, with Australia the most advanced with just under 50% automation in the critical area of distribution support. The laggards are South Africa and surprisingly Singapore, both at around 20%.

This is put down to the sheer diversity of the global distribution models.

Whereas fund distribution networks in the U.K. are dominated by independent financial advisers and platforms, banks are responsible for the majority of fund sales in Singapore, commented Edward Glyn, head of global markets for Calastone.

Market maturity is also a key factor.

The U.K. and U.S. markets are far larger and more advanced fund markets than those in South Africa or parts of Asia, says Glyn.

The cost of labor is also much higher, resulting in a more robust approach to automation and cost reduction. In the Australian market, commercial banks outsource much of their manual processes to third parties, which could help to explain their perceived higher levels of automation.

Competing in the future

Some activities are less automated than others. A large proportion of service providers in the U.K., the UK, South Africa, Australia and Singapore conceded that certain activities such as compliance support, distribution support, know your customer, anti money laundering, client onboard and reporting were either mostly manual or only partly automated.

Even though a major of the asset managers held digital or tokenized assets such as crypto currency, these are often still managed by old systems despite the fact that the asset managers understood that digital infrastructure and automation would deliver better results.

If global fund administrators are to remain relevant, most will need to make some swift changes to their business models, says Glyn.

It is crucial that those which have fallen behind embrace digitalization so they can compete in the future.

Whether that be through an advancement of the way investing operates today or entirely new ways of investing such as tokenized assets.

The impetus for transformation is becoming more urgent. In other research, Calastone has identified that expenses are rising faster than revenues for fund managers and business models are becoming less profitable even as the industry manages larger volumes of money.

The second of three recommendations from this research invokes the opportunities presented by technologies such as automation and better data management: asset managers should also join the race for digital transformation and re-build operations to turn data from a headache into an advantage.

Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends andtheNextGenConnectivity editor.He remains fascinated with howbusinessesreinventthemselves through digital technologytosolve existing issuesandchange their entire business models.You can reach him at[emailprotected].

Image credit: iStockphoto/gorodenkoff

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Asset Managers Finally See the Need for Automation - CDOTrends