A recent survey on the likelihood of big IT firms moving into asset management suggests that transformation will be led from within the industry, as opposed to a Google-like technology giant disrupting the incumbents’ business model. However Steve Young of Citisoft believes theses firms face a number of internal challenges in order to maintain and adapt their current operating models to reflect the opportunities and demands of the digital world.
I recently saw the findings of a survey concerning the likelihood of the big IT firms moving into asset management. The theme of the research is whether such a move would disrupt what has been a traditionally quite slow-moving industry.
The conclusion of the study (by CREATE Research) was that the IT giants would not take a leading position in the asset management industry. One of the key reasons given for them not doing so was that consumers would not be willing to place their investments in the hands of firms that do not have the same kind of risk culture as the asset managers. Cybercrime was another factor cited, the fear of which would prevent consumers from moving toward the large IT players (essentially due to the very public security failures of the likes of Google, Microsoft and Sony).
Personally, I would have thought that the rise of cybercrime would play into the hands of large IT firms. They would have a far greater IT capability than any asset management firm – and vast, deep pockets. The greatest concern, however, would be the protection of data. Revelations by whistleblower Edward Snowden revealed that agreed privacy practices were being ignored by some of the major IT corporations. There have been calls for the current Safe Harbour deal, which allows the transfer of data to US firms, to be scrapped. These developments could have wide implications for all US firms dealing with European data, including the likes of Twitter, Google, Microsoft and Yahoo!
The CREATE research suggests that transformation will be led from within the industry, as opposed to a Google-like technology giant disrupting the incumbents’ business model. The study concludes that ‘asset managers will be in the driving seat because risk management is in their DNA’.
I do, however, believe that the traditional asset management firms are slow moving and face a number of internal challenges in order to maintain and adapt their current operating models to reflect the opportunities and demands of the digital world. This outmoded infrastructure will create some significant constraints for many existing players, who have neither the culture nor technology stack to demonstrate the required business agility. The benefit of new market entrants being able to build new operations from the ground up could be significant.
Existing firms have huge challenges in terms of streamlining their operation to provide digital services, where ageing technology and a naturally conservative culture are commonplace. Many firms are investing and overhauling their front office and customer facing teams in an effort to keep pace with the customer demand. The real objective is to radically change the operations department in order to be able to service these clients with the information they require in a timely and accurate manner.
I think a move from a technology firm initially into the retail area is most likely. Once they are established in retail, they may then move into the mass affluent space and on up the ladder, but I can’t see them taking over the institutional space in the near future, if at all.
-By Steve Young, CEO, Citisoft