The Fed raised rates for the second time in a year, and it is widely expected they will continue at “some” pace in the future. Brexit is still a work in progress, and it is becoming clear that the path from the vote to leave and the actual departure from the European Union will be arduous. A new administration is imminent, and headlines fill both the mainstream and trade press with speculation on what changes may be ahead.
There’s so much in the air it can be tempting to respond to changes in a piecemeal fashion, but this isn’t the best response. It’s true that we do not know the exact shape of things to come, but we should consider trends already in progress and how they may impact the asset management industry in the months and years ahead. It’s best to have a long-term outlook even though short-term uncertainty may be high.
Major themes ahead
Two major themes are likely to dominate the year ahead: an ever-changing regulatory environment and the continued rise of financial technology.
The Obama administration is leaving with a significant number of rules and regulations not finalized. While it is unreasonable to expect the implementation of complex legislation to be completely wrapped up in time for a political transition, it does leave compliance and operations departments in a bit of a bind.
How much should you pay attention to the headlines? In the age of Twitter and push alerts, it can be tempting to shift policy based on every rumor and unnamed source. Don’t. Instead consider an approach often deployed in doctor’s offices – “watchful waiting”. Continue to act as if every law and rule that has been passed will come into force. Ensure the strategy enables the creation of a solution that is not “hard coded” as the most likely outcome is that core regulations will stay, but changes will occur around the edges. Don’t drastically change strategy until something actually happens, as the political process can be unpredictable and missing deadlines carry major consequences.
There’s plenty of work to do. T+2 will require adjustments in the way asset managers trade and manage liquidity. The Securities and Exchange Commission recently voted on a plan to establish a consolidated ledger that will allow regulators to see trading activity in one central location. No matter what direction regulations take, it’s important to remember that the underlying goal of many regulations is towards greater transparency for end investors. If you use this goal as a long-term planning technique, you should be well-positioned for whatever the changing political landscape brings.
The continued rise of FinTech
The FinTech revolution is not likely to slow down anytime soon. You should continue to think carefully about how to work closely with FinTech companies and whether a buy, build, or integrate strategy makes the most sense.
Carefully evaluate the technologies you already have before deciding on outside vendors. Internal capabilities must be carefully weighed against large providers that have broad networks, scale, and expertise as well as smaller providers that are generally more innovative and nimble.
Next year will no doubt bring some fantastic leaps forward in technology. There will almost certainly be a flurry of announcements around blockchain. But be careful – for each new invention, ask if it can help you build a leaner, smarter business. New technologies that solve business problems (eliminate friction in the marketplace) will be adopted while those that don’t might look cool, but won’t solve business problems.
All of these changes will place against a backdrop of cost pressure. The asset management industry will be pushed to do everything better, cheaper, faster and without foregoing performance.
Continued investment in technology and access to data and robotics will help companies offset cost pressures with efficiency gains.
Even in a year as uncertain as the one ahead, there’s something you can feel confident about: there will always be companies, investors and clients out there expecting more with less. Time to get to work.