Asset management is under pressure. In addition to challenging market conditions, growing competition from low-cost index products is also gnawing at the margins of fund providers.
Due to technological advancements in Big Data, Artificial Intelligence and Blockchain more and more FinTech solutions point out how profit margins can be increased in fund distribution through digital asset management.
Influence of technological change
Although the global financial industry has been digitizing its processes for some time, the development in traditional asset management has so far been little visible. In contrast to payment transactions (Apple Pay), credit cards (Revolut) or mortgages (Hypomat), the influence of technological change in asset management has so far remained modest.
According to a study conducted by PwC in October 2018, the margins of asset managers fell by almost nine percent between 2012 and 2017 and should fall by a further 20 percent by 2025. Increased competition, rising regulatory costs and the growth of passive investment products (ETFs and index funds) with their low fees are in charge of this development.
This situation is the reason why new forms of cooperation are being sought, for example in the form of cooperation with independent digital asset managers, so-called Robo Advisors. The collaboration between digital asset managers and established asset managers shows that a fund provider can open up new markets without compromising existing institutional channels.
Thanks to FinTech cooperations, fund providers can use their resources specifically in the more intensive advisory process for larger private and institutional clients. Both parties can benefit from this, as they can fully exploit their respective core competencies and make profitable use of them. Fund providers find an efficient and cost-effective distribution channel for end investors in cooperation with digital asset managers, and the Robo Advisor benefits from tried and tested model portfolios, which increases the credibility of the digital platform. A true win-win-win situation that benefits investors, asset managers and the digital platform alike.
Asset management is facing a "disruption" of proven models through new technologies. So, the only way to address these challenges is to take the initiative to lead change, which means investing in innovative technologies. Established asset managers should think about cooperations with Fintech companies, especially in order to acquire technological know-how and benefit from digital asset management opportunities.