PERSONALIZED ASSETS Under pressure to perform, asset managers and securities service managers borrow innovation tools from other highly regulated industries
Asset management and securities services organizations juggle competing priorities, challenged to deliver customer-centric products while increasing efficiencies and ensuring transparency Compass asked Amin Rajan, CEO of CREATE-Research, an independent global forecasting center based in the UK, how asset management and securities services firms can rise to the challenge.
COMPASS: What are the key challenges facing asset management and securities services businesses?
AMIN RAJAN: Markets have been jittery since 2008 and, as a result, clients are nervous about investing. In addition, experienced clients are becoming older. They’re getting closer to retirement and they haven’t got time to recoup any past losses. To bridge that deficit, regulators have been bringing in new laws and tightening the enforcement of existing ones. As a result, asset managers have come under huge pressure to think about new technological and product innovations.
How important is a customer-centric focus in addressing these challenges?
AR: It’s essential, because this industry can no longer afford to take customers for granted. They need to understand the customers’ needs and risk tolerances and deliver what they ask for. In the past, the asset management industry has been supply-led, but now it is becoming demand-led because customers are questioning their asset managers much more. Unless asset managers have a significant client focus, many of them will struggle.
What role does innovation play in achieving customer centricity?
AR: Innovation in the industry is absolutely vital because clients’ needs are changing. Meeting those needs will require new products, new asset allocation tools and new risk approaches.
One emerging trend is toward digital, self-service tools that enable clients to do self-directed online asset allocation, fund selection and risk monitoring – tasks that only asset managers could do previously. These digital innovations are in their infancy in asset management now, but they have huge potential to change the dynamic of the industry as a new generation of digitally savvy investors comes online over the rest of this decade. Clients will be in much better control than they have been in the past, and intermediaries will be challenged to provide better service, advice and added value. Those that are rising to the challenge are moving up the value chain and raising the bar for the rest of the industry.
How can asset managers and securities services firms benefit from the product development processes of other highly regulated industries?
AR: Such processes certainly have relevance in both sectors. Asset managers face competitive pressure in terms of how quickly they can bring a product to the market and how much they can spend on marketing, while securities services firms need improved planning control, faster time to market and strengthened enterprise collaboration. These are the areas where we are seeing some of those processes entering the industry.
Can you give us some examples?
AR: Right now, a minority of asset managers are able to do things like data aggregation, instant data analysis and getting insights out of their data. However, many businesses have legacy information technology (IT) systems which aren’t connected and remain a formidable barrier to progress.
“INNOVATION IN THE INDUSTRY IS ABSOLUTELY VITAL BECAUSE CLIENTS’ NEEDS ARE CHANGING. MEETING THOSE NEEDS WILL REQUIRE NEW PRODUCTS, NEW ASSET ALLOCATION TOOLS AND NEW RISK APPROACHES.”CEO, CREATE-RESEARCH
How can asset managers leverage technology to improve innovation outcomes?
AR: Managers need a robust strategy that sets out how to nurture innovation from the initial capture of customer needs and wants through ideation, development, refinement, regulatory review, launch and redesign as the market evolves.
Our research has shown that 40% to 50% of asset managers think they’ve got that kind of a process, but often it isn’t as rigorous a process as the ones we see in other industries. Regulatory requirements make it more prominent that asset managers need to manage products for the long term. Currently, this process tends to be done using manual systems with low quality assurance. This is an area where innovation – particularly technology innovation – can make a huge difference.
Which areas of innovation will shape the asset management and securities services industry in the future?
AR: There are three key areas of innovation that will shape the asset management industry. First, we’re going to see changes in asset allocation approaches, where money is allocated between different asset classes. Second, products such as private debt, which enable investors to lend money directly to a company, are really taking off, and we’re going to see similar new products in the future. Finally, digital DIY tools that enhance the customer experience will empower investors to do a lot more than they are able to do now and will demystify the craft of investing.
These changes will be incremental but they will happen. We’re talking about a phenomenon that’s still at the nascent stage, so we’re not seeing competitor leapfrogging yet. But, by the end of this decade, we’ll see a lot of that as the effects of what organizations are doing now come downstream. Technology is such a powerful force, and it will eventually redraw the contours of the asset management industry.
Similarly, in the securities services industry, innovation is occurring in several key areas such as payments and settlements, where technologies such as blockchain are rapidly changing the speed and collaborative nature of international transfers. Secondly, enhancing asset management “data intelligence” by leveraging big data has emerged as a focus area for asset servicers. Today, asset managers are demanding big data services from asset servicers, so in the near term this will be a competitive advantage for the servicer as well. Finally, firms are beginning to embrace technologies used in other industries that significantly improve the often-overlooked space of financial product development and lifecycle management, which will help these firms mitigate regulatory pressures and improve customer centricity as well. ◆
BNP Paribas Securities Services, a fully owned subsidiary of the global BNP Paribas Group that specializes in securities custody, clearing and settlement operations for institutional clients, is the first financial services institution to leverage a sophisticated product development system like those used in aviation and life sciences to bring complex new products to market quickly in a highly regulated industry. BNP Paribas Securities Services then uses the system to manage and refine products as the market and its customers’ needs change.
To bring new products to market faster, it’s essential that BNP Paribas Securities Services be able to collaborate efficiently across its 34 sites. “We have lots of ideas and initiatives,” said Philippe Ruault, head of clearing, settlement and custody products at BNP Paribas Securities Services. “It’s extremely important that we have a consolidated view of all these initiatives and that they conform to the bank’s global strategy. Referencing all these product and service categories, and documenting them all in one place, is becoming highly complicated.”
To address these challenges, BNP Paribas Securities Services is leveraging automated product development technology – a pioneering move that supports the organization’s commitment to innovation while enabling faster time to market for new products and services.
The collaborative platform helps BNP Paribas Securities Services to capture information and to design, develop, validate and manage new products. It supports innovation among the company’s global teams, enabling real-time collaboration with all stakeholders across business lines, products and project phases. Management has full visibility on all ongoing projects, including their status and potential as well as their compliance with the company’s banking strategy. By digitizing its product catalog, BNP Paribas Securities Services also is able to redeploy existing services and components to tailor new solutions for its clients. This shortens the overall development cycle and enables the company to bring solutions to market faster.
“The initiative enables us to bring everyone together around an idea or a concept to validate its business case and decide whether we should invest in it,” said Sébastien Messean, head of product lifecycle management at BNP Paribas Securities Services, who leads the initiative. “It supports the validation and development of new products and the development and maintenance of existing products. We eventually want to include our clients in the product development process, and they will enable us to meet their needs more efficiently, more rapidly and more innovatively.”
To learn more about the solution BNP Paribas Securities Services is using, visit: http://bit.ly/SecuritiesServices
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