How technology is giving consumers more choice
Fund managers, just like any other business, need to assess the impact that new technology is likely to have on consumer choices over the next few years. The internet is both the friend and the enemy. It provides instant access to a massive degree of choice for consumers and it also provides a way to communicate with many more possible customers. The result of this is that whilst some highly specialized niche providers will always survive, the factory like suppliers of asset management face huge technology challenges.
A report by Forrester highlighted the changing ages of the last 110 years. From 1900 to 1960 it was the manufacturers that held sway as they could produce good products more cheaply. From 1960 to 1990 it was distribution that mattered most as the beginnings of globalization took hold and manufacturing could be more easily transplanted. Then from 1990 to 2010, it has been the information age, where being smarter about where point of sale information helped businesses gain an advantage over their rivals. Now and for the next 20 years at least, it is the age of the client. All the other stages have become commoditized and the only advantage is understanding, connecting to and serving the client. It is not exactly “the client is king”, but rather, knowing what the king wants before he even knows himself and putting it out in front of him. These days the consumer can search and find instant comparisons between competitive services anywhere in the world. Companies must use technology to position themselves to win business. Service is the technology.
Someone recently asked “Imagine if Facebook, Amazon or Google decided to become an asset manager?”. Scary thought! All they would need to do is set up an outsourced provider and then use their massive distribution power to start gathering assets. Their technology infrastructure would allow them to innovate at an unbeatable rate. The key sales pitch they would have would be price. Their cost of supply would be so low, they could afford to provide services at a price that would also enable them to have better long term performance (1% fees per annum over 20 years is a big chunk of any portfolio). This in turn would force traditional asset managers to be more precise about what exactly was the value they added: personal service, customized investments, tax advice and so on.
Not only could Facebook, Amazon and Google leverage their amazing distribution, they could also leverage their unparalleled ability to gather customer metrics and analyse behavior, adapt their offerings, and improve their services at viral speed.
Asset management is an ideal business for the internet. Fund super markets have done well and are a major source of assets for fund managers. New products like ETFs and smart beta ETFs offer the possibility of automated and sensible asset allocations for individuals with small levels of assets at a very low price. Combining all these components into one process, with portfolio risk and performance reporting thrown in, is not such a pipe dream.
Asset managers struggle to offer their clients the sort of service they would like to offer and the reason they can’t is technology. That technology is here now. Solutions like StatPro Revolution, a self-service, cloud based, portfolio analysis service are changing the way people think about how they can transform their business. The speed and accuracy of such a service, offers early adopters a clear commercial advantage. As these services are linked in time with other cloud based solutions, so a whole new eco-system will spring up to replace all the traditional software.
The value point is shifting for all companies and the fund management business needs to adapt too.
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