Rating agency Moody's Investors Service has warned the lack of innovation and long-term underperformance in the asset management industry has left the door open for tech firms to disrupt and gain market share.
In research looking at the global asset management industry, Moody's said the sector could expect a "second wave" of disruption following the adoption of low-cost index funds, which have already compressed fees and pressurised firms' business models leading to mega-mergers.
Although US tech giants such as Amazon and Apple were unlikely to enter the market solely in the hunt for management fees, Stephen Tu, vice president and senior analyst at Moody's, said there were a number of ways these companies could disrupt, particularly from a distribution perspective, and "to facilitate data collection and to keep clients within their company ecosystems".
Tu said: "We envision a future where technology companies increasingly enter financial services, and within asset management, offer an electronic store of value vehicle, be it money market, index or digital asset funds.
"These vehicles would allow for holding reserves of purchasing power and would facilitate closer financial interactions with clients. Customers could, for example, perform direct deposits into these vehicles, which could then be linked to a payment app, potentially with social media features."
Tu added asset managers were "vulnerable" to competition from tech firms with robo-advisers such as Wealthfront, Acorns and Betterment already taking market share in the US.
He also pointed out offering a fund product would directly benefit the "primary" business of a PayPal-type firm in terms of revenue streams.
"A payment operator [such as PayPal] could offer asset management as a complementary service through money market funds and index funds, while simultaneously promoting the use of its own payment systems," said Tu.
The research highlighted BlackRock and Fidelity as two "exceptions" ahead of the curve, as both have made "significant" investments in technology "in order to offer a wider range and better customisation of products and services to clients".
Early this year, BlackRock announced a number of active equity funds would be replaced with alpha-driven strategies, which resulted in "manager displacements".
Overall, however, asset managers have not fully adapted their services to reflect shifting client preferences; "they face a client base that increasingly expects its digital needs to be met," the research said.
Ultimately, Tu said: "Traditional asset managers must adapt their businesses to reflect the technology-oriented preferences of their client base.
"Otherwise, technology firms will more easily be able to capitalize on their own strong distribution channels and begin expanding their existing ecosystems by cross-selling financial products to their clients."
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