Digital technology in asset management – disruption or disappointment?

When did you first hear the term disruptive technology? I am pretty sure that for most of you it was within the past five years. The term is actually over 20 years old; it was first used in an article published in the Harvard Business Review in February 1995. When terms like disruptive technology enter popular usage, there is a tendency for them to be applied liberally and, as a result, excessively. These days, if you want to make something sound innovative and exciting then just attach the label ‘disruptive technology’ to it, even if it isn’t actually disrupting anything.

This is what I think is happening with the adoption of digital technology in asset management; we’ve attached the disruptive tag to it but it isn’t actually disrupting anything, or at least not much and not yet.1

Disruption needs more than new technology

Disruptive technology isn’t new technology that allows us to do things better, faster, and cheaper than we did them before; that’s just new technology. Disruptive technology is new technology that changes behaviours, that re-invents customer needs and re-calibrates customer expectations, and so creates new markets and value networks.

Can we say that digital technology has done any of these things in the asset management industry? We could point to some areas, but it would all be on a very small scale in the context of the global asset management industry. When you compare the impact that digital technology has had in asset management with the impact it has had in other areas such as the retail and leisure industries, you have to say that it hasn't changed much so far.

And this should concern us, because a lot of asset management organisations are investing a lot of money introducing digital technology into their operating models. I question how much of that money is being spent wisely; and I question how much of that money will deliver the outcome that any form of business investment should deliver: more profit.

Disruption needs more than a bandwagon

In asset management we have a track record of thinking that we are leveraging advances in technology to future proof our operating models when what we are actually doing is spending a lot of money to join a bandwagon heading down a cul-de-sac. Recent examples of this include the dash to implement IBOR projects and the noise around Big Data initiatives.

Saying that something is happening, even if you say it loudly and say it often and say it with lots of conviction, doesn’t mean that it is actually happening. We live in a post-truth age and in a world of alternative facts and fake news. Take a good long objective look at how digital technology is being applied in asset management, and then tell me how it is truly disrupting the industry.

I would agree that digital technology has disrupted some areas of the financial services industry. And I would also agree that it has made inroads into asset management, viz. the introduction of robo-advisers. But when you look at the global asset management industry as a whole it is difficult to objectively conclude that it has been disrupted by digital technology. More importantly, when I look at what mainstream asset management organisations are doing in their haste to 'go digital' it looks a lot like they are joining a bandwagon rather than future proofing their operating models.

Disruption needs more than disruptive technology

Clayton Christensen was the first person to use the term disruptive technology back in 1995. In 2003 he and Michael Raynor wrote a book called The Innovator’s Solution. In this book the authors replaced disruptive technology with disruptive innovation because they had realised that technology alone does not disrupt; disruption occurs when new technology enables the introduction of new business models with disruptive power.

About 10-15 years ago, asset management companies first started making client reports available to their institutional clients as PDFs via static portals. Many investment management firms told their clients that as they could now access reports via the manager’s client reporting portal, they would no longer print and post paper copies of the reports. However, their clients refused to accept this and firms continue to print and post paper copies of client reports to this day. The problem was that there was insufficient differentiation between the old and the new reporting models, and there was insufficient added value in the proposed move to ‘paperless’ reporting. In fact, it was a regressive step from the clients’ perspective because they had to do more to get the same service at the same price.

Introducing new technology without introducing new business models will not change behaviours, or re-invent customer needs, or recalibrate customer expectations. It will not disrupt.

While I challenge the claim that digital technology is disrupting the asset management industry, I don’t disagree with the claim that it could be disruptive. In fact, I would go so far as to say that it should be disrupting the industry. My point is that asset management organisations need to do more than just introduce digital technology, they need to leverage it to re-invent parts of their business models.

Digital disruption in asset management

In the next post in this series I will draw comparisons between how digital technology has been applied in asset management with how it has been applied in other industry sectors. In subsequent posts we will look at why asset management presents more of a challenge than other sectors and at some examples of how digital technology could/should be disruptive in asset management.

In the final post in this series we will argue that what the industry needs is a maturity model for digital technology in asset management.

1 Just to be clear, what I mean by digital technology is: technology for delivering all forms of information (text, pictures, audio, video, etc.) via email, websites, apps and social media.

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