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Digitalisation can increase asset management inflows finds Alpha FMC

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Asset managers still have some way to go on their digital journey, but those that are more digitally mature tend to perform four times better according to a recent survey conducted by Alpha FMC, a wealth and asset management consultancy.
 

The survey found that net flows as a percentage of total AUM were up to four times stronger for those with the higher levels of digital maturity than those who were at the earlier stages of their journey.  “Those firms that are more mature digitally are better at both creating inflows and stopping outflows,” explains Kevin O’Shaughnessy (pictured), head of digital transformation at Alpha FMC.
 

The survey which analysed how far the asset management industry has progressed with its digital transformation, found that spending has increased significantly since last year. Asset management firms, on average, spent GBP17 million per firm in 2018 on digitalisation. However, some of the larger firms, explains O’Shaughnessy have invested as much as GBP50-60 million in the last year. The consultancy surveyed 31 of the largest global asset management firms, collectively managing over GBP18 trillion in AUM.
 
“Investment is growing year on year, but we think it will take another couple of years before it gets to the kind of levels seen in the banking and insurance world,” adds O’Shaughnessy.
 
However, they now view digital as high priority with over a third of firms (38 per cent) classifying themselves as “Fast Followers”, states the survey. This compares to 9 per cent of firms which felt they were at this stage 12 months ago.
 
In terms of new entrants, Alpha FMC does not believe that the asset management industry is under threat from disruptors, unlike in the wealth management sector. O’Shaughnessy believes that this is because the barriers to entry are too high. “You have to be a scale player, have significant investment expertise and a distribution footprint already, and this makes it a less attractive sector to new entrants.
 
“With asset management, we believe that it is more of a reinvention of existing firms with innovation coming from inside the industry. In other words, established players are working towards operating more efficiently, cutting costs and dealing with clients in a digital way.”
 
At the top of asset managers’ wish list this year, says O’Shaughnessy, is the need to design a better experience for their clients, but they are also looking to design an operating model that is lower cost, lean and agile.
 
“People are looking to adopt more agile techniques in their business. This is not just about technology, it is for firms that want to be able to improve efficiency in their decision-making process and get their products to market quickly.
 
The survey also found that the US is only a little further ahead the UK asset managers in the digital transformation journey. There are some well-known brands such as BlackRock, JP Morgan and Vanguard that are the recognised leaders in the industry, says O’Shaughnessy. But he acknowledges that the US does look to the European asset management industry, with its varied distribution channels, complex structures to benchmark their digital capabilities.

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