Keith Hale, CEO of fund accounting and investor servicing provider Multifonds, has said the asset management industry is at a turning point, as a result of increasing regulation and heightened pressure on fees since the global financial crisis.
He observed the industry is in an entirely different place compared to before the crisis and while the threat of disruption remains unlikely from a Google-type giant, it is crucial firms continue to innovate otherwise they will get left behind.
Hale said: "The industry is beginning to wake up to the fact it needs innovation. You can see firms starting to employ ideas such as proof of concept, robo-advice, data analytics and big data, which have never been applied in a significant way in asset management.
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"The threat of fee pressure and regulation is forcing people to re-assess how they are going to make money and provide value to end investors.
"This disruptive threat is causing firms to look at innovation, however asset management remains in the digital ice age compared to other industries."
In order to counter this threat of disruption, Hale said it is vital firms invest more of their earnings in innovating, which in the short term would affect their margins but would have a far greater impact in the long term if they did not follow this course.
"There is the threat of disruption and rather than sitting there like a rabbit in the headlights and being disrupted, they need to implement what firms are talking about," he said.
"It is important firms genuinely innovate and apply this into areas such as automation, operational efficiencies, product development and digital engagement.
"That is where we see the market going and that will stop the threat of disruption."
Increasing regulation
In Multifonds' recent survey entitled Every Fund Survey 2017, the provider found almost two thirds of asset managers believe their profitability will fall in the next 12 months, while 69% said the regulatory burden would be "insurmountable" for new players in the market.
"There is some good and some bad regulation," Hale said.
"For example, MiFID II will have a big impact on the industry. At the moment it is seen as a pain but asset managers could use it as a way to re-connect themselves to the end investor."
Furthermore, Hale said the FCA's Final Report of its Asset Management Market Study (AMMS) could result in some "unexpected consequences", as were felt after the Retail Distribution Review.
