1. Technology trends from the consumer world will drive incremental shifts for investment managers in 2015
Major paradigm shifts in consumer technology have changed the way we manage our personal lives and have already made significant disruptions in some industries. And while the financial services space takes a more conservative approach to adopting emerging technologies for obvious reasons, we are also starting to see tech-driven disruptions emerging in retail financial services with trends like peer to peer lending and the emergence of robo-advisors.
All these are having an impact, albeit a subtle one, on the investment management industry, although in many cases it is difficult for investment managers to articulate exactly what they want. So far, we see clients looking for more collaborative, social solutions and we are helping firms develop ways to share information in a more efficient manner.
We expect to see increased demand for solutions that will provide connectivity between in-house and 3rd party systems resulting in better business insight and enhanced client services. In addition, we expect to see increased demand for cloud solutions as customers seek to run a more complete business. This will include the incorporation of, not just accurate data, but data management tools that also provide control, flexibility, and the ability to truly impact the bottom line.
2. Investment management firms will begin to feel the real impact of regulation
Broad regulation that followed the financial crisis is now getting much more specific, targeted, and structural. This year, firms will finally start feeling the impact of the post-crisis regulatory activity and they will take much more specific responses:
Many of our clients are preparing for their first AIFMD reporting and filing, others are keeping a close eye on the development with MiFID II and Solvency II, although these are unlikely to be implemented before end 2016/early 2017. FATCA and local tax regulations are also relevant for most investment firms across Europe and firms are striving to cope with this as efficiently and correctly as possible.
In addition, there are new rules on how investment firms are allowed to pay for broker research and for banks, the new capital requirements regime have begun to take effect.
3. The overlapping of traditional and alternative corners of the industry will mean more outsourcing of functions in 2015
With investors demanding more non-correlated investments, we don’t see the pace of “hybridisation” slowing in 2015. Hedge funds, as well as traditional asset managers, will continue to broaden their lines of business and, as a result, will also have to adjust their business operations.
As investment managers continue to look at global investment opportunities, other considerations from risk management to regulatory compliance come into play. As firms continue to focus on gaining market share and reduce costs, many functions that are perceived as non-core will be divested or outsourced. Advent expects technology outsourcing to continue its growth and to some extent administration as well.
4. The spotlight on suitability – at a proposition, rather than product level
Amid an international crackdown on unsuitable advice, we expect forward-thinking wealth managers to become more proactive about how they can leverage the data gathered in the process of evidencing suitability. They realise that the more they know about clients the more precisely they can tailor their offering to them and predict their needs. They also see the efficiency gains to be had by systematising (and automating where possible) the process of assessing clients and matching them to appropriate investments, and then monitoring and reviewing that match over time.
An institutional-style investment process is rapidly becoming the gold standard for suitability in the private client world, aided by the proliferation of increasingly sophisticated software designed for this purpose. They have to cope, for example, with the fact that suitability questionnaires vary according to regulatory regime (although they are broadly similar in terms of the discovery process they entail).
There will be an increasing focus on client outcomes, where the quality of advice is judged by how far it helps the individual achieve their financial objectives rather than whether it was suitable according to the outcome of a cursory tick-box process.
5. Future-proofing without a crystal ball – effective use of data
Regulators internationally are clearly pursuing certain shared agendas in their efforts to create a more stable financial system and better protect investors. But regulation is fast moving and often ambiguous, and we should never under-estimate the propensity of regulators (and governments) to surprise. It is impossible to predict exactly which new rules or amendments will be coming down the line as regimes continue to evolve over the coming decades. Therefore, there is an argument for wealth managers gathering and storing as much data as they possibly can on each client’s profile, objectives and behavior. This may seem like overkill, but could prove invaluable against future complaints (and it should be remembered that regulatory fines continue to come thick and fast).
Generally overlooked data is now coming into its own. Many wealth managers have already put the ability to be able to store as much data as possible on their systems at the heart of a future-proof compliance strategy and we expect this trend to continue throughout 2015. Ultimately, wealth managers are looking to aggregate the right data and to store it, manipulate it and ultimately report on it either internally or externally, or in combination. Gathering this data will need to involve a well-structured process to increase the data’s usability down the line: getting the right data needs the right workflow and capture. The key differentiator going forward will be the ability for managers to access reliable, relevant data and fast.
By Martin Engdal, Market Strategist, Advent Software