Financial technology or 'fintech' is growing at a rapid pace, something that has not gone unnoticed by traditional asset managers who can see the threat to their market share. As investors' profiles and preferences change and technology continues to break new bounds, asset managers need to decide how to incorporate fintech into their strategies or face being left behind.
While the fintech sector is still in its infancy, it is already growing hastily. According to a report from Statista, the amount of global assets managed by robo-advisers is expected to grow at an annual rate of 38.2% between mid-2018 and mid-2022. Data accrued by Accenture also shows fintech investment set a new record globally last year, having risen by 18% from the previous year to $27.4bn.
It is therefore unsurprising those in the asset management industry are worried about the future of their careers.
A global survey from PwC, entitled Beyond Automated Advice: How FinTech is Shaping Asset & Wealth Management, found 60% of asset and wealth managers fear losing part of their business to fintech companies. However, the same report also found only 34% of firms engage with fintech companies at all, while just 31% offer a mobile application to clients. As a point of comparison, 81% of banks, 41% of fund transfer institutions and 39% of insurance companies already have apps.
Demand for fintech
Patrick Schueffel, professor at the Institute of Finance of Fribourg's School of Management, said it is fundamental the asset management and wealth management industries catch up with client demand for improved technology. He argued the demand for the adoption of fintech has existed since the Global Financial Crisis (GFC) of 2008, when investors had their confidence - and the performance of their portfolios - knocked.
"Ramifications of the GFC went far beyond a monetary drawdown. People started asking more fundamental questions about the role of financial intermediaries in general," he said.
"This led to business models supporting the democratisation of investment such as crowdfinancing and crowdinvesting. Moreover, the repercussions of the crisis were longer-lasting than expected. Today's zero-interest environment still causes asset managers and clients alike to pull a long face."
Despite the rapid technological advances we have seen over the past few years, it is predicted pace will quicken even further from here.
Niral Parekh, head of UK retail asset and wealth management at Capco, pointed out that demand from investors for wealth management services has increased exponentially over the last few years and, in the UK alone, £70bn-£80bn of assets are set to pass to the next two generations every year and these investors expect a more hi-tech approach.
"These new members of the family think, act, save and invest in a very different way. New technologies allow better ways of staying relevant to the large intergenerational wealth transfers in the market," he explained. "Meanwhile, this industry is encumbered by legacy technology, closed architectures and complex products and services."