At a recent conference, I was struck by the breadth and depth of innovation in areas such as Energy, Mobility and Industry. I was equally struck by the absence of Fund- and WealthTech entrants, as new ideas appear to have dried up or limited to incremental gains.
To be sure, some of it is cyclical: financial services is an enthusiastic adopter of technology, and some of the mid-2010s developments - Cloud, mobile-first - are still being absorbed. As dark clouds are gathering over markets, attention will naturally shift away from ambition to damage limitation.
Nonetheless, it is clear that attitudes to innovation have shifted. When other sectors are hungrier than ever for new ideas, Asset and Wealth managers appear sceptical. As a technology vendor, we have to wonder if the industry has become wary of innovation.
Barriers to innovation
Compliance is certainly the most cited reason: as regulation struggles to keep up with technology, managers are faced with increased complexity and risk. The native acronym-soup of GDPR, MiFID and PRIIPs is thick enough before DDoS and AI are mixed in.
The native acronym-soup of GDPR, MiFID and PRIIPs is thick enough before DDoS and AI are mixed in.
Another reason is the relative lack of competitive pressure, as Asset and Wealth management is one of the few areas untouched by Big Tech. More broadly, for all the proliferation of Robo-advisors, no firm has built a consumer brand or claimed a significant market share.
There is also evidence that investment is not too high up the list of millennials’ priorities. If demand from early adopters is missing, managers reallocate budgets to more immediate areas. Worse, a convenient generalisation paints investors as “resistant to change”.
Finally, the industry seems to have lost its knack for embracing emerging technologies. AI is seen as too unpredictable, Blockchain too unstable, VR / AR too gimmicky. Not unreasonably, the initial reaction to innovation adoption is assessing and managing its security risk.
Approaching a tipping point
All this is understandable, but not sustainable. A number of linked developments are in store, which we think will trigger a race to innovate.
Start with demographics: the intergenerational wealth transfer will soon reach a tipping point, bringing up Wealth higher up the list of millennials’ concerns. In response, Big Tech will enter the fray, offering investment services to their vast user base through familiar and integrated experiences.
Blockchain can safeguard trust if the industry cannot exorcise bad behaviour
Regulation can sometimes kick-start innovation; for example, we look forward to a PSD2 equivalent for asset management. Another scandal like Woodford could force the adoption of Blockchain to safeguard trust if the industry cannot exorcise bad behaviour.
The race to innovate
Asset and Wealth Managers understand that their competitive landscape evolves at least as fast as the markets. Regulation, competition and shifting customer demands will soon prove that the current attitude to innovation is outdated, even complacent.
The resulting race to adopt more innovative solutions will transform the industry like it did in the past. And, just like before, the first to adjust their mindset will have the best chance of adapting.