For many financial managers, the rise of digital investment platforms is disrupting the landscape. But it is also providing great opportunities.
Advances in technology, coupled with an increasing interest from venture capital firms, are fueling a new breed of competition. Completing the perfect storm for transformation are changing customer expectations; more people want to manage their entire financial lives with the simplicity of an app.
These are but some of the warnings of Antony Jenkins, former Barclays CEO and current founder and CEO of the FinTech start-up 10x Banking as he cautions asset managers to be careful how they respond to rapid changes.
“In my 36 years in financial services, one fact has stuck out,” he writes. “People only adapt to new technologies or processes when they are significantly better than what is currently available. Changing habits takes effort—so the payoff has to be worth the trouble. Financial services are now at that inflection point.”
Jenkins says that the asset management field is experiencing a seismic shift, and business is no longer business as usual. Financial managers should consider adapting to changes in the marketplace or risk being bypassed for cheaper, quicker, more effective digital options.
“Think of technological change as an iceberg,” he writes. “While it is easy to get distracted by the front-end use cases that float above the surface, such as app-only banks, the real scale and power of technological change lies hidden from view.”
Instead of fighting or, worse yet, ignoring the inevitable, Jenkins says they should respond to the digital revolution in two important ways:
- Invest in Technology
Companies are already using technology for their banking tasks, and the natural next step is to find ways to apply new capabilities to help manage and strengthen their portfolios. Financial managers should welcome and invest in technology that allows them to create profitable lines of business.
“Sophisticated data processing technologies—artificial intelligence and distributed ledgers, supported by cloud computing—will lead to significant improvements in the industry,” Jenkins writes. “They will enable smarter fundamental analysis to strengthen portfolios and better assessments of exposure and risk factors, such as foreign exchange, market volatility, settlement, and reconciliation.”
- Invest in People
Financial managers have an advantage over app-only platforms: their people. To capitalize on innovation, invest in teams as well as technology. As routine financial services are automated, asset management firms have an opportunity to reassess practices and processes.
“Whether that frees people up to add value in other ways depends on whether your organization can make the most of its human capital, and how well it is able to mix complementary human and machine skills,” writes Jenkins. “Technology alone cannot replace an investment thesis—yet.”
The days of discretionary managers earning large sums are likely numbered, he says. Agile businesses will triumph over those that rely on their size.
“The criticism that money managers are too slow to adapt to changing technologies is hardly new,” Jenkins concludes. “But familiarity should not breed complacency or skepticism. Only those who are able to seize the opportunities technological change presents will be the winners.”