Fintech redefining asset management

9 September 2016
By Manjit Singh, Asset Management and Insurance Practice Leader, PwC Malaysia and Lum Kar Hoe, Manager, PwC Malaysia

Over the last five years, the growth of Fintech has gained significant momentum globally, transforming the look and shape of the financial services industry as we know it. Implications to Malaysia’s financial services industry are far-reaching, as traditional players grapple to retool their business processes and culture in response to this new wave of disruption.

The rapid growth of millennials (one-third of the Malaysian population), who represent the next generation of investors, and their affinity for technology, is the driving force behind Fintech.

The effects are particularly felt by the asset management industry, according to local fund management industry players PwC spoke with. The industry needs to reshape its thinking and way of doing business to meet the demands of tech-savvy millennials.

Fintech companies are creating new solutions across the customer investment journey, from financial planning to investment management. The result is a highly disrupted value chain threatening to capture some of the market share from the incumbents.

New Fintech solutions being created across the customer investment journey

A lot of Fintech companies are drawn to Asia’s rising private wealth. The Boston Consulting Group predicts that Asia-Pacific (excluding Japan) will surpass Western Europe as the second-wealthiest region in 2019, with a projected US$55 trillion in private wealth.

The Malaysian asset management industry, being the largest unit trust industry in Southeast Asia[1], is an attractive market for Fintech companies to target. It is ripe for transformation.

Robo-advisor in play

Among the key disruptors the industry faces are robo-advisors. It automates the asset allocation process and allows for a personalised user experience at a much lower cost compared to services provided by traditional asset management firms. This poses a significant threat to local players, especially considering the entry fee in Malaysia’s fund management industry, which is one of the highest in the world.

How robo advisor, Motif Investing, is reshaping asset management

While the robo-advisor space has been growing in the United States and Europe, it is only beginning to make inroads into the Asian market. However, a number of automated advisory platforms have emerged recently in the region.

For example, out of the six major internet companies in Asia, five have already entered the wealth management market. TenCent[2], for instance, has proposed a wealth management service through its famous App: WeChat, where existing users are now able to place their money into a money market fund.

A paradigm shift

Based on our conversations with local fund management industry players, we learned that they are already conducting studies on the integration of some of these Fintechs solutions including robo-advisors. They are expecting disruptions to their businesses from these new innovations.

Capitalising on Fintech will require a fundamental shift in the way asset managers operate. Here are some of the critical areas players will need to address to successfully adapt to the new marketplace.

Change in mindset
Given the disruptive nature of Fintech, it is imperative to change people’s mindsets. Asset managers will need to challenge existing assumptions and experiment with new business arrangements (through partnerships and collaborations). This includes embracing new technology in every part of their business, focusing on the customers’ needs and experience, customising their solutions to meet individual needs, and incorporating Fintech in the core of their strategy.

System execution
In executing any plans, the devil is always in the details. It can be the difference between a strikeout and a home run. For example, in implementing robo-advisors, the application will need to incorporate the entire lifecycle of a unitised investment from the investor’s due diligence (front office) through to the investment decisions (middle office) and eventually to the operations (back office).

Collating personal data
A key success factor of a robo-advisor solution lies in the data it collates from the investors. This will allow it to make the right investment decisions[3]. To get your customers to share their personal data, you must first assure them that you can provide a delightful user experience, according to a SAP report. Delighted customers are five times more likely to disclose private data compared to unsatisfied consumers. The report added that when it comes to digital experience, consumers place high regard on security and services that can be used across multiple platforms.

Human touch in digital world
In the race towards automation, fund managers via robo-advisors can embed ‘human touch’ elements by incorporating more personalisation in the interaction with customers such as tailored financial news and reports, with the help of data analytics, apps and algorithms. Such personalisation and tailored solutions which were once only accessible to high net worth clients can now be made available to the masses. This, together with excellent customer service will provide a top notch investor experience.

Summary

The next generation of investors asset management firms are targeting are different from their older peers. They require simple and automated online investment platforms, where everything is accessible through their mobile devices from market insights, wealth reporting to social investment interactions.

This requires a paradigm shift in mindset, strategy, operations and customer engagement from the part of the asset managers. As it will take a while for these changes to fully take effect, asset management players should act now. Don’t wait for something to be broken. Disrupt your own business – streamline your operations and look at new ways to engage your customers - before technology upends your business. You’ll see the results soon enough as an early adopter.

[1] Securities Commission Malaysia Annual Report 2015

[2] Chappuis Halder & Co, “Investment Advisory: The rise of the robots?”, 2015

[3] Information regarding investors’ personal profile, finances, education level, and banking information, can help decide the risk profile and investment objectives though the use of algorithms.