Part one of our interview with Eric Bernstein is available to read here
Earlier this year Broadridge appointed former Wall Street trader and fintech pioneer Eric Bernstein to the position of President of its asset management solutions division. In an exclusive interview with bobsguide, Eric discusses his take on the future of asset management, including why he believes the industry has overreacted to the impending implementation of MiFID II and the Trump Administration’s apparent desire to relax regulation in the US, and how his former life as a trader has given him a unique perspective on the pain points of his customers.
In conversation with clients, is the general consensus that asset management firms are moving away from a stage of panic when it comes to PSD2?
There was panic in the market when I joined Broadridge earlier this year.so we looked at the issue pragmatically and asked ourselves which fields the regulation required us to capture, which fields we captured already, and where there was a gap.
We discovered there wasn’t a gap, so the question then became purely one of how to generate the right reporting.
Now when clients ask us what we’re doing for MiFID II and we explain it, they feel better about it. We don’t have to do anything monumental to change our processes, we have protocol to send through our trade and transaction reporting capabilities, and that concept has resonated because it’s logical.
So is MiFID II actually nothing new?
Absolutely. History is littered with examples of regulatory bodies thinking they’re doing something very unique in their jurisdiction but in reality a parallel piece of regulation has been implemented in another jurisdiction years before. In the US, 15 years ago firms were changing the way they reported, and had hard dollar and soft dollar research so you could delineate how you were paying your broker dealer for the research they were providing. I was doing that in an Access Database in 1993.
Do you think that during the Trump Administration we’ll see any regulation changes in the US that will have an important impact?
I get the feeling that the Trump administration may relax some of the regulations, but time will tell. The Democratic Administrations, Clinton and Obama, really tightened regulation; not that that was a bad thing, but there was a lot of regulatory change during those times. Trump is a bit more capitalist, more investment oriented because he’s an entrepreneur. But I don’t foresee any major regulatory change.
We are already pretty comprehensively regulated in the US, so I can’t imagine where we could regulate more. Every industry is looked at; insurance, private equity, hedge, capital markets, asset management are all regulated now.
Is there any chance of a significant relaxation of regulation rather than a minor one?
A huge relaxation would be a bad thing, you don’t want chaos. The Trump Administration is smart enough to know that it doesn’t make sense. And I don’t think any of the regulation currently in place is super restrictive per se.
You moved into fintech from being a trader yourself. Do you think that it is a growing trend in the industry that people with experience on the buy-side are moving across to work for vendors?
There are definitely more practitioners entering the technology space than 20 years ago. That being said, still when I visit clients, we talk about the fundamental issues they are faced with and they are pleased that I understand them.
Is bringing more practitioners into your team a priority?
Yes, we are hiring more practitioners. I’m not a believer in hiring people that don’t know the domain; you can teach people technology but it’s hard to teach them the business. People have claimed to have learned the business in a couple of weeks, and I tell them it’s taken me 25 years. We do hire fresh-out kids who are tech savvy or finance savvy and we can teach them both, but that’s a longer investment.
In addition to consolidation and the squeeze on asset management, do you think there’ll be any new trends in the industry we will see in the next 12 months?
We’ll see the consequence of what’s happening now in 12 months. As firms get squeezed they start to look at how they can diversify themselves or specialise in areas where they can substantiate their existence more.
When you have commodity-based services, your willingness to pay is going to shrink, because as a service becomes a commodity it’s no longer something firms specialise in. Businesses in this position that find themselves offering a common service and then have to specialise in new ways, and that’s what you’ll see in asset management. As an example, private equity firms in general are either institutions, pensions or require very wealthy people to invest. But you could create private equity funds that are retail based and diversify, enter a new market and attract new investors. So you’ll see that kind of innovation.
Additionally, from an innovation perspective, asset managers are looking at AI and machine learning as a way for making up the squeeze in the margin by reducing costs through efficiency. Outsourcing i.e. switching from a fixed cost model to a variable cost model for elements of manpower is also something asset management firms are looking at. Both of these are areas of interest to Broadridge.
We’re looking at proof of concepts to transform how we operate, especially as an outsourcer. It’s very helpful in the day-to-day business, but when you’re outsourcing you’re taking on the same problems from other people so you need to make sure you’re also innovating and being efficient.
What are your defined goals at Broadridge for the foreseeable future?
What I’m trying to do is build the organisation and infrastructure, and then the brand. Broadridge has such a great brand in the capital markets space and I want us to mirror that in the asset management world. My goals over the next year are to put the pieces of our business together in a material way; I see a lot of companies that buy assets and have them sit alongside each other and claim they’re integrated and they’re really not. I want to be sincere about it, if I’m going to connect the dots, I’m going to do it in a meaningful way.