Embracing disruption in the asset management industry

Dan Houlihan outlines the three most important trends for asset managers for the forthcoming disruptive age.

By Dan Houlihan, Northern Trust editors@globalcustodian.com 
The asset management industry is one of many industries in the middle of a digital disruption. It can’t be stopped and the industry needs to adapt.

I have worked with my team at Northern Trust on how we respond to changes in our business environment, and more importantly, how we help our fund administration clients respond. More than anything else, creating a focused technological operational strategy is critical. The right strategy merges pre-existing work and tools with things specifically designed to meet today’s digital landscape. We need to focus our approach rather than initiate a wholesale replacement of products and strategies.

I recently joined a panel at the NICSA Strategic Leadership Forum to discuss these issues. The conversation helped clarify what’s at stake. Here are three important trends in this area I discussed during the event.

Partnerships are key

Short-sighted institutions sometimes react to industry disrupters in a defensive way, seeing the future of the industry as a battle between an “old guard” and new companies. This is wrong. Asset managers should build and retain relationships with disruptors.

We have consulted with robotics labs and robo-advisories. These relationships are mutually beneficial, allowing for smaller companies to use large datasets and the resources of a large organisation. Asset managers gain access to leading-edge thinking and observations that can help inform changes to business operations. Start-up firms can bring a new energy to traditional asset management firms, which is appealing when trying to attract new clients.

Bigger institutions sometimes incubate startups and disruptors in house, while smaller companies may lean more into partnerships to reduce implementation costs.

Embrace disruption

The sooner asset managers embrace the coming wave of digital disruption, the better. A tradition-bound mindset when it comes to technology is no longer adequate. Banks need to thoroughly understand the technology they use and how it is being built.

At Northern Trust, this has meant creating a Global Fund Accounting Optimization Lab (GFAOL) lab, where we combine business and technology innovations. In the lab, we reimagine how we work with each other and clients. We can now create solutions in real-time, seeing how new technologies could benefit our customers.

Changing demographics of investors

It is becoming more important to look toward the next generation of investors – millennials who are very conscious of disruption.

As millennials start to control more wealth, we are bound to see a mix of asset management tools and access to direct investments by millennials. The millennial generation expects asset managers and banks to provide tools such as robo-advising along with unparalleled speed and security, as promised by blockchain technology.

Technological disruption isn’t going away. Smart asset managers will embrace change and implement processes that allow to be agile in how they respond and adapt.