Have fund services executives accepted their fate?

Kevin Walkup, president and COO of Harmonate, explains what fund managers and administrators can learn from the Silicon Valley giants such as Facebook and TikTok.

Fund managers and fund services firms usually don’t compare their companies to social media, but they could learn some lessons from the recent travails of TikTok and Facebook.

The US government is considering banning or limiting the use of Chinese-owned TikTok, saying the video-sharing service harvests too much of Americans’ personal data. TikTok is not small fry. It placed fourth on the list of the most downloaded iPhone apps in 2019.

A recent Facebook-commissioned audit concluded that the Silicon Valley giant could work harder to uphold civil rights. The audit came at a sensitive time – as activists called for a boycott of Facebook in protest against hate speech on the platform.

Both companies are in the data business yet are publicly struggling to manage their data with regulators, customers and others.

TikTok’s lesson reminds us that data is arguably a kind of financial asset that users give up in exchange for accessing so-called free social media, an argument posited by Brown University Political Economist Marc Blyth. It’s a version of the axiom that people who Facebook post or Google search are not those companies’ customers but their products. Even free data is valuable, in other words.

Even titans need help

The second lesson is that even titans that enjoy formidable domain expertise sometimes need partners for analysis and projects of the most ambitious scale. The irony of the Facebook audit is that a website that excels at tracking users’ data and targeting advertisements based on that data still met roadblocks when assessing itself. Even the best physicians can’t always cure themselves.

Fund managers and asset servicing outfits should take these lessons to heart in the coming quarters. At present, most are under the gun to bolster their data fund operations amid a competitive market that’s weathering unprecedented crises that are hitting at the same time fees and margins were already shrinking due to the dizzying numbers of financial products on the market.

Coming to grips with data operations

It’s no surprise that fund managers are among the more than 80 percent of companies who believe their internal data tools are critical to operational success, according to Retool. Creating and maintaining those internal data tools eat up significant resources, however.

Fund administrators and managers will always need to safeguard, manage and capitalise on their data responsibly and as effectively as possible. But they need to accept that fees and margins are plunging and probably won’t return to past levels anytime soon.

Customers, like users, have plenty of other options for their data and finances. Embracing that new reality will open windows to new ways of thinking about new data operations for funds.

If they want a growth trajectory, fund managers will have to solve for those shrinking fees and margins. Either they accept the decline and milk it while they can, or they change now and embrace the trend in the industry as an existential concern. The latter quickly becomes an exercise in striking a balance between the cost of data scientists, protecting margins and planning for future tools that scale.

But who’s going to get it done?

Perhaps most importantly, fund managers are going to have to ascertain if they have leaders empowered to make the changes in their data operations that they require over time. Those leaders must be organisationally minded, willing to make unpopular choices and accept near-term losses to move their business to a new set of rails.

This includes the right technology that gives them an edge and potentially a moat protecting them from competition. And the sooner they discover and validate the right approach, the effective the moat will be.  If they fail to embrace and implement advanced solutions, these enterprises will be overrun by automation and their competitors.

TikTok and Facebook are very successful companies. But in some key, high-profile areas they failed to build sufficient moats around their uses of data. They might become better companies because of the experiences. Fund managers facing stormy seas ahead might want to take steps to avoid analogous damages that might correspond to their industry.