Everything from Mifid II to robo-advisers and anti-establishment movements discussed in Berlin
Earlier this week, more than 2,000 global investment and wealth managers came together at the annual FundForum in Berlin to discuss the main trends affecting the industry. Although the scope of the discussions was broad, a number of topics were at the heart of many of the debates and conversations throughout the three-day event. Here are our top five:
Robo-advisers and technology
Tom Brown, global head of investment management at KPMG, segmented the issue of technology and digital disruption in the asset management industry into three main areas: customer experience, operational efficiency and the use of technology to manage money.
Robo-advisers – online wealth management platforms that provide automated portfolio management advice without the use of human financial planners – are perhaps the industry’s best example of all three points rolled into one. While the technology is still relatively new, use of robo-advisers has been growing exponentially, especially among members of the younger generation, who today prefer to view and manage their pension savings using a mobile app rather than going into a bank branch.
A number of traditional asset managers have equity stakes in robo-advisory platforms, aiming to strike a balance between traditional and technology-based approaches under the umbrella of an established, credible brand name. Others argue that artificial intelligence and machine learning will eventually lead to the demise of the fund manager entirely, the argument being that machines can do what humans can, only better. Consumer behavior will adapt to the new environment as it always has done when presented with innovative leaps forward such as self-service checkouts, online interactions and – soon – driverless cars.
Blockchain
In October last year The Economist devoted its cover story to blockchain. The trust machine looked at how the technology behind bitcoin could ‘change the world’. In simple terms blockchain is a digital, trusted, public ledger that everyone can inspect but which no single user controls. It keeps continuous track of transactions: for example, ownership of a diamond, a rare painting or a piece of land.
The asset management industry continues to debate the potential applications of this technology, which started out by powering bitcoin. In a panel moderated by Lawrence Wintermeyer, CEO of Innovate Finance, ideas ranged from blockchain’s applicability in areas such as the post-trade environment, collateral and liquidity management, regulatory reporting, and the handling of know-your-client and anti-money laundering data. In each instance success will require close collaboration by the various parties involved.
The anti-establishment movement
Mohamed El-Erian, chief economic adviser at Allianz, addressed some of the shifts that are giving rise to the anti-establishment movements seen in many developed countries today.
‘The common element throughout all these things,’ he explained, ‘is that the advanced world has lost the ability to grow in a fair and inclusive manner, and when that ability is lost and people lose confidence, things start going wrong.’
El-Erian stressed that global growth is unlikely to be consistent and stable any time soon, so the risk of non-normal distribution of events affecting the markets is always an issue. Secondly, he highlighted central banks’ inability to rein in financial volatility, which remains as much a constant as ever.
The discussion centered on the fact that investment managers should try to adopt a new framework for the way they think about risk, and acknowledge that market events in both developed and emerging markets no longer follow a normal distribution curve.
Is data the new gold?
A number of panels focused on the industry’s ability to understand and use the unprecedented amounts of data that are generated by each one of us in the digital world.
‘By 9.00 am each morning we have already created more data than mankind created from the beginning of time to the year 2000,’ said Andreas Weigend, former chief science officer at Amazon. ‘Because of the signals you send through sensors, microphones, GPS, gyroscopes and cameras, your phone knows almost everything about you: where you are walking and even how you are walking – it probably knows more about you than you know yourself.’
Crunching and refining such data enables the industry to improve and tailor its products a lot better to meet client needs.
Costs and transparency
The new European Mifid rules, due to take effect in early 2018, will require funds to give more information on costs in their fund factsheets.
EU and UK regulators are demanding fairer and more transparent fees from fund managers in a bid to ensure greater transparency and accountability to investor clients. As discussed in previous blogs, as part of this process they are also assessing which costs should be borne by the asset manager and which can be passed on to the end-client through management fees and commissions.
The new regulatory environment is forcing asset managers to rethink a number of elements of the traditional business model, such as how they consume and pay for investment research. And with technological innovation comes regulatory oversight. Those able to react quickest to the dual challenges of new regulations and market unpredictability are most likely to succeed.
Michael Chojnacki is CEO of London-based IR technology platform Closir. This is an edited version of an article that first appeared on Closir’s blog
