A barrage of costly challenges to fend off disruption has led many asset management firms to expect a fall in profitability over the next 12 months.
Two thirds of firms in a global survey said they expected profitability to fall as they invest in innovation, such as digital development and operational efficiencies.
Multifonds, a software and fund accounting firm, questioned 214 asset management firms and found the threat of disruption led 92% of respondents to believe a new industry era of innovation was beginning.
Just over 60% of survey respondents perceived the threat of a game-changing disruptor shaking up the market – though nearly 70% thought the “tsunami of regulation” would be an “insurmountable barrier” for new market entrants and start-ups to do this, meaning change may come from within.
In response to the cost and innovation pressures wrought by disruption, there would be a strong focus on cost cutting and developing direct links with consumers, the survey found.
Digital development ranked highly and the majority (55%) of respondents pointed to big data analytics, artificial intelligence and robo-advice as being the digital innovations with the greatest impact on the industry.
Almost two in five (38%) cited operations as the primary focus for their business’s innovation over the next 12 months for reasons of cutting costs and facilitating a seamless integration between end investors and back office processes.
Keith Hale, the CEO of Multifonds, said asset management was in the “digital ice age” compared to many other industries.
“Some players are testing the digital waters with direct-to-consumer distribution and robo-advice, but this is often window dressing on a model that is plagued with legacy issues.”
He added: “The wider industry is now in a position where it must replace fragmented functions and systems with highly efficient processes using scalable modern technology, or risk being disrupted into the history.”
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