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Issues Archive » FundsTech Summer 2021

Roundtable: New age thinking

FundsTech – Where is innovation most needed?

Hornett – We have to start to look outside of our traditional industry and how we’ve done things. We’ve still got an eighties mentality. It’s getting better, but when you look at the likes of Amazon, we’ve got a long way to go to capture that experience for a retail investor who may only be putting £25 into an ISA or a lifetime savings product, but it’s really important to them and they want to be able to change funds and see recommendations. If you make it affordable and you personalise it, that business will grow. It isn’t just a case of giving £25 over to someone and then forgetting about it. 

Aerts – Innovation is needed in most areas but as we continually move towards a client-centric model, we require better knowledge of the clients and more data to analyse. The Holy Grail is to link the lifecycle of a product, environment events and customer intelligence. This is the logical next step in anticipating trends and better responding to clients’ needs while bringing value.

Clarkson – We need to innovate to simplify the distribution network, especially in Europe, where it is very fragmented. And we have to make data much more usable. How do we use data to ensure we develop products for 20-year-olds to start saving, the middle aged and the retirees. The word has changed, we live longer and we need to save earlier. So how do we support that?

Ruetimann – There are five areas where innovation is most needed. Number one is client experience with respect to digital content, tools and self-service facilities. Number two is data curation, improving the accuracy and completeness of data used for decision-making as well as client and regulatory reporting.  The third point is accommodating new investment vehicles containing digital assets.  The fourth area is information security. New, innovative technology solutions will be needed to cope with the next operating pandemic. I consider this to be the biggest headaches for COOs today. 

The final area is one which I have been talking about for over a decade, namely the need to deliver operational alpha and to lower the cost of investing in capital and private markets. The industry has not made much progress with respect to the latter. Intermediation remains extensive and expensive for investors.  Operational alpha is the ability to deliver process efficiencies and to ensure the effectiveness of a firm’s technology solutions and sourcing strategies.

Andemeskel – Innovation is most needed in situations where we can provide access for people that are overseen or are currently not being served. When Facebook decided to launch its own currency, Libra, the main reason why it received so much attention was that Facebook has 3 billion people on its platform and many of them have no access to financial services. Another area relates to new assets and investments – from tokenised football clubs to windfarms, from impact investing to ESG and microfinancing. All of these areas are growing and we need to invest in technology to be able to offer these products. We need to reach a point where it is as easy to invest in a fund as it is to buy a book on Amazon.

Glyn – One of the things I’ve learned during the pandemic is that our industry makes things slightly more difficult than they need to be. Everybody’s talked about ‘Amazonisation’ and it is interesting to look at the data. Amazon has about 200 million Amazon Prime members and that statistic grew by 25% in the US over the past year. And 69% of all people who trial Amazon Prime go on to use it; 93% of users continue to pay for the program after one year. Imagine if any of us in this industry had a sales record or conversion rate of 69%. When you look at why consumers use a marketplace, rather than go direct to the provider, 26% of US online consumers cite saved payment info and single-click buying as their main reasons. Around half of Amazon’s Prime users admit to free shipping and ease of finding products as their favourite features.

The big difference between the likes of Amazon and our industry, especially in the UK, is that funds are sold and not bought. With Amazon and Facebook, it is about three things: what people are sharing, what people are looking for and what people want to buy. We have to make the client experience better and we have to remove friction in the back end to create ‘fulfilment shops’ in the style of Amazon. And we have to get people more interested in what we’re doing as an industry. People are too apathetic towards their investments and only start to take interest when they see they actually can’t afford to live a future life in comfort, until it is too late.

Bernstein – We are forced to have these tri-party relationships. There’s no bilateral relationship, so unlike Amazon, there are middlemen controlling a lot of the operational efficiency. If I’m on the buy-side and buy a security, it then goes to my custodian, my fund administrator. On the sell-side, it goes to their clearing agent. They meet somewhere in the middle, and then it’s sent back. This process takes two days. It reminds me of when my grandmother used to send me a cheque in the mail. I’d get it one-and-a-half weeks later, cash the cheque at the bank and have $20.  There is so much inefficiency in the market today, with much of it resulting from people’s fears of disintermediation. But in the end, if we can drastically improve efficiency, who cares?

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