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A NEEDFUL ASSET MANAGEMENT INDUSTRY MAKEOVER

The situation couldn’t be more ironic.

On one side, regulatory pressures have left little room of manoeuvre to the financial industry. On the other side, fintech startups and social networks have soared as mushrooms. Threat and opportunity at the same time, this new phenomenon cast a shadow on the existence of traditional banks but has been democratising at the same time acces to financial information and services.

Twitter and other social networks have turned into complimentary sources of information for investors

Despite a slowdown in user’s growth, Twitter remains an impressive relay of information. Its influence is such that some even dare recognising it as a “market maker” which is nevertheless overstated in my opinion. However, truly, information relayed on social networks have been able to cause sudden and significant moves in the market. As an example, Tesla’s CEO tweet in march 2015 prompted a few minutes later a signifcant rise in the fim’s valuation in just a few hours.

Fiona Frick, CEO of Unigestion Asset Management asserts that the firm dedicated about EUR10M in technology investments over the last 3 years. As she mentions, the flood of financial informations is so abundant that it is essential to process it in order to integrate them in their investment decisions – Being technologically advanced is now critical for asset managers.

Fintechs and their attractive features for investor’s younger generations

Beside social network applications, fintech companies have been providing investors  with attractive services , competing directly with traditional financial institutions. Lagging behind due to mounting regulation presssures, the financial industry is indeed the last sector to start its so-called “digitalisation”. A thematic that is now in most bank’s top agendas but looks like too versatile for these big giants englued in heavy structures and regulation.

From mobile payment services to credit and funds raising for small businesses, fintechs have literally invaded the Bank’s “old preserve” : Ant Financial services (Alibaba), Lending club, OnDeck, Bitspark, Sparro to name a few are moving fast and with an agility that banks can barely compete with.

Long preserved, the Wealth Management industry is similarly affected by the digitalisation effect – quite logic when about two thirds of the new wealth creation comes from developing economies (Asia, Africa, Latin America, etc.). New wealthy investors located in emerging markets are indeed great adepts of new technologies and have a different mindset with respect to the use of financial institutions:

  • Gambling mindset;
  • Use of several banks as depositary institutions;
  • Use of Financial Advisors / Wealth Managers mainly for investment opinion (vs. porfolio management);
  • Limited loyalty and capacity to use different platforms / advisors as long as it matches expectations (low cost, higher yield).

Ironically, the asset management industry once assumed that developing to emerging market would only require them to locally replicate their business model. Eventually, it appears that investors themselves are driving a fundamental industry makeover: eager to reduce costs and broaden investment opportunities (beyond bank’s limited products offering) the younger generation of investors is gradually turning towards fintech services.

Large asset management institutions are therefore increasing the pace of global partnerships / acquisitions but will they be agile enough to keep up with the young generation versatility?

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