Regulatory Transparency: An Early Answer to a Higher Calling
Imagine a future where investors have on-demand control over their investment decisions. Instead of calling an advisor to make adjustments to allocations, they will be able to open their personal investing app, see how their investments are doing, analyze risk profiles, compare returns, and make changes−-in real-time. The app could aggregate data across their entire investment portfolio and let them react to information anytime, anywhere.
As our industry moves toward increased regulatory transparency, we are closer to that future than we think. The immense volume of data that firms have collected and validated and the rapid adoption of mobile technology by the average consumer are only expediting this shift. Quite frankly, if regulators are collecting the data in an effort to protect the investor, it's not hard to imagine an app that gives investors access to that same level of transparency and control.
The current regulatory overhaul to improve fund transparency is, in fact, ultimately about serving investors' needs. The global financial markets have, for decades, been allowed to operate with a level of opacity that simply does not reconcile with the level of transparency and control that consumers have gained in other industries over the last 10 years.
Just look at the music industry. A few years ago, it was completely disrupted by the introduction of MP3 technology. Now, streaming services like Spotify have been created and are again redefining the way music is shared and sold. Rather than purchasing albums, we now have access to an unlimited music catalogue for under $10 a month. How is this still profitable? Through the sheer volume and scale that e-commerce has ushered into the music industry.
Other industries have seen similar disruptions: real estate, online trading, mobile banking and urban taxi services, to name a few. These disruptive businesses were built to give consumers more information and better tools to guide their purchasing decisions.
How does this translate to asset managers? Since the economic downturn in 2008, our industry and its regulators have put a tremendous amount of time and effort into better understanding risk at the fund, market and systemic level. We've been successful in implementing a system of controls and improving overall transparency. To achieve this we've had to collect, validate and analyze a vast amount of data about our market. As a result, we are now sitting on a virtual goldmine of data that is begging for the industry to curate it and invest in the technology that can put the power of that information in the hands of the investing consumer.
Yet, the myopic firms in our industry aren't looking at the big opportunity the appetite for transparency presents. They are still staffing up their back office to manage and report their data manually–a move that increases both their up-front and long-term costs and simply does not scale. Not to mention, they continue to invest time and money into a data management process that is highly prone to error and counterintuitive to growth.