The Digital Transformation in the Asset and Wealth Management Industry


Funds Society | May 10, 2017

The Funds Society article, “The Digital Transformation in the Asset and Wealth Management Industry,” interviewed Russell Reynolds Associates Consultant Mar Hernandez about Digital Transformation and its challenges. A translated excerpt of the article is below.
Technological breakthroughs have generated a long list of tasks and challenges that this sector must take on in order not to fall behind. Attracting talent, the development of new roles, the introduction of new business models, and the relevance of the compliance department are just some examples.

Digital transformation, who hasn’t heard of this phenomenon? I can’t imagine any industry in which digital transformation is not a hot topic. Progress in digital technology, its rapid acceleration and adoption by new generations – look at the case of the millennials – and the relevance that big data is taking on in any strategic decision that companies make, as well as in the political sphere, these are issues that we hear and read about every day.  
But how is this transformation affecting the asset and wealth management industry? Better yet, what are the implications with respect to new roles and competencies that companies are going to need to cover? Because for transformations to be carried out, human capital is needed, and transformation in the industry presumes a change in the kind of talent that companies are going to need. 

Digital transformation entails various challenges for this industry. First, low returns from traditional investments force asset managers to offer smart beta and low fee alpha products to investors via strategies based on algorithms, quantitative analysis, and artificial intelligence.

As a consequence, we are going to see new positions appear such as quant/systematic portfolio managers and analysts, artificial intelligence developers, and professionals who know how to represent and make quantitative products attractive. 

For these positions, professionals with technical and engineering backgrounds who know how to adapt to this context are going to need to be contracted. They will also need to have an understanding of coding and programming in AI and the ability to articulate sophisticated quant strategies to investors in a credible manner. 

Not to be outdone

Another one of the changes is investors’ preference for passive strategies/ETF’s, for which an important issue will be the creation of an offering with customized products oriented around multi-asset solutions. 

In the first quarter of 2016, global managers experienced outflows of 95.4 billion dollars, according to eVestment data.

These outflows were added to the outflow of 137,000 in the last quarter of 2015. Most of the losses were concentrated in actively managed funds, which lost 70.5 billion dollars, while passive funds had inflows of 11.9 million dollars. 

This trend can also be seen in investor preference. According to a BlackRock survey, 60% of millennial investors and 40% of Generation X investors believe that market returns with passive strategies will be greater than those from active managers, while only 30% of baby boomers agree.

To read the full article in its original Spanish, click here.

Sign up for our newsletter

Get the newsletter that prepares you for what's next with valuable insights across industries and geographies.
The Digital Transformation in the Asset and Wealth Management Industry