There has been no shortage of commentary of late from respected institutions such as the International Monetary Fund with regards to the growing significance of the contribution the asset management industry delivers to the real economy and of the critical role it plays in the retirement industry’s sustainability.
However similar reports also warn of seismic shifts ahead for the industry. Demographic changes, together with technological advancement and social transformation will inevitably change the needs and requirements of investors. The question is – as an industry, are we ready for such monumental changes? To ensure that we are ready, we need to be more forward thinking and innovative in our approach.
Disruptive external forces such as changing client behaviours, a complex regulatory environment and globalisation are already forcing many asset managers to integrate risk and compliance functions as well as streamlining front to back office operations. Organisations tend to become overwhelmed when reacting to these forces and can often overlook the sheer amount of data that they hold and how this could be used for the benefit of the firm. Enter the importance of ‘data’ and the significant competitive advantages that this could bring to the asset management industry as a whole.
Using data effectively is all about analysing structured and unstructured data, from multiple sources that can provide an organisation with previously unattainable insights that lead to a competitive advantage. Insights are derived from the unique combination of the data itself and the skills of a data analyst. The better the data and the data analyst, new and original insights will emerge to add value to a business, inevitably providing scope for competitive growth. Unlocking the insights contained within data through analytics will enable organisations to shape business strategies based on facts rather than on intuition.
The generation of alpha and investment returns, rightly or wrongly, will always remain crucial to an asset managers’ value proposition. However there is more to it. An investment process that is simple to understand, the availability of asset classes, understanding a client’s individual needs when designing product solutions are all factors that cannot be overlooked. The value proposition needs to be widened.
Relying on market leading absolute or even relative returns to sell products and attract inflows is not only short-sighted, it’s becoming more and more difficult. Outcomes, solutions, education and transparency will ultimately become more important than performance.
Customers expect organisations to understand them and as such treat them as individuals. They also expect products and service models to be customised and tailored to their individual needs. Customers and intermediaries are much more likely to be attracted to a brand and retained through personalised products. A one size fits all approach to product solutions no longer satisfies the varying needs and wants of investors and intermediaries today.
As an industry, we rely on intermediaries to generate sales. The advice that they provide to clients is key to ensuring that retail investors understand the products that they are purchasing. However, if we are not providing intermediaries with the required level of support they need to ensure that they can successfully sell financial products and educate clients at the same time, then we have failed and the customer journey has collapsed. It is not good enough to accept the assumption that the traditional methods of communication to the intermediary market are functioning. Just because glossy marketing and sales support collateral have been published does not mean it is being read. We need to ensure that communications become more targeted and as a result more successful.
Insights derived from analysing data can support an increasing level of engagement with clients and intermediaries alike. Unlike the institutional market, financial literacy amongst the retail market remains low, making it increasingly important that our industry provides better advice and support to clients and distributors alike. Intermediaries are not portfolio managers and as such they need to know how their client’s investments are preforming together with the reasoning behind the decisions taken by the asset manager on behalf of their clients’ investment. Organisations own their data. Therefore organisations need to ensure that they get it those that need it most, in a format that can be easily understood.
Improved Customer Experience.
It may sound like a cliché, but a truly customer-centric organisation should always have the customer at the heart of everything it does. This involves, but is not limited to, mapping the customer journey and lifecycle, aligning technologies and processes to support and drive customer engagement, engaging our employees and executive’s alike, aswell as incorporating customer feedback into our processes and behaviours.
The strategic value in data is the insights that it can present into what may happen in the future, based on an analysis of past behaviours and events. Predicting how your customers’ aswell as those of your competitors may behave and how that behaviour may change is critical to tailoring and pricing products. Insights derived from data analysis will help businesses to understand the unique needs of their clients, provide intermediaries with the knowledge to recommend the best course of action for the investor and improve customer satisfaction and customer retention. Harnessing valuable insights into clients’ needs, behaviours and requirements will build customer loyalty and improve the overall customer experience.
A recent report released this year by IBM, the IBM Institute of Business Value (IBV) study, showed that 63% of organisations in 2014 achieved a positive return on data analytics investments within one year. The study also showed that 74% of respondents anticipate that company executives expect the speed at which data-driven insights are delivered will accelerate.
This in itself will provide numerous challenges for us as an industry. No matter how much data is cleansed, compressed or otherwise, it would be short-sighted to believe that IT infrastructure will not have some effect on the outcome of the results. For a business that depends on data analytics to make decisions, even small failures with IT systems can lead to cascading problems that could get out of hand quite quickly.
Data analytics can lead to significant improvements in human capital management, financial & risk management and operations. Marketing capabilities can be improved to address customer acquisition and retention. Even quality measures and performance management can be improved upon and calculated more efficiently. Where typically as asset manager’s performance management may have been based on whether or not he/she could outperform a benchmark within certain risk parameters, data can widen such objectives to include how he/she used data analytics to predict and adapt to unexpected market movements (such as sentiment).
All data has its potential, but it needs to be used correctly to derive its full value. Think of a raw diamond that has just been mined. Its full value will only be realised once cut and polished.
Data is a corporate asset and as such must be treated and guarded as such. To take advantage of such an asset, it is critical to have in place an effective data strategy in place that can not only provide value to customers and end users, but can adapt to new and ever-changing data requirements. Asset managers have been generally focussing on data supporting investment decisions, but they hold significant amounts of customer data, aswell as financial, reporting, compliance and investment data. Asset managers are, in essence, also a data provider. Managing such large quantities of data presents a significant strategic challenge. Looking at data for reporting purposes only and maintaining data in silos across different departments and systems can be both counterintuitive and counterproductive for any discovery exercise. To extract the most value, data needs to be centralised into one location, across one platform. This would allow data from multiple sources to be combined and interpreted by individuals with the relevant analytical skills, who can use predictive analytics that are becoming more sophisticated to draw out unique insights.
Human input is essential to extracting competitive insights. As competition within the asset management industry intensifies, recruiting the best talent is key, but just as important is the availability of high-quality information that can support in the decision making process. More and more highly skilled individuals are entering the industry. These individuals are more highly skilled and educated than their peers of 10 years ago. All of these individuals have access to the same information. Therefore ‘identifying the edge’ in terms of extracting valuable insights can become more difficult. The paradox of skill here is that relative skill, as opposed to absolute skill, is often more important in shaping the end result. In other words, in a competitive market regardless of how technically proficient todays professionals are, luck still plays an important part in the final result. As such, to maintain a competitive advantage, it is remains essential that an organisation hires the right individuals and commits to developing their talent. But just as important is keeping pace with and utilising the most advanced analytical tools and IT infrastructure that will ensure organisations can ‘identify the edge’ , ultimately leading to business success.
As data and data requirements change it is important that the tools we use to refine and distribute the data move in tandem. The adoption of data management techniques and tools is important to ensure that consistently useful data is derived at that is aligned with the overall business strategy. The use of data and analytics will fundamentally change the target operating model of a business.
When used as a strategic asset, data can drive continuous business model innovation. But more importantly, it provides the flexibility to predict and adapt quicker to changes within our environment.
Differentiation can only be truly achieved through innovation. Enriching customer engagement and driving operational performance is key. Reporting on financial and regulatory compliance is one thing, understanding why something has happened or may happen is another. Through a deeper understanding of our customers, we can find new and engaging ways to interact with new and existing customers. More refined and customised products can be produced at an ever quicker rate than before. Operational efficiencies can be achieved.
Optimising the use of data and analytics in line with strategic objectives will inevitably underpin an organisations competitive advantage and will continue to do so when its people have the desire to seek out and utilise analytical insights. These factors combined will allow an organisation to become a market disruptor in itself.
New insights come from not only analysing new data, but from within the context of the old, to provide new perspectives on existing problems.