In the previous post I highlighted two aspects of asset management products that create challenges for digital strategies in asset management. But it isn’t just the ‘product’ that creates challenges.
Running in the wrong direction won’t help you to win the race
An operating model is a logical representation of the processes, systems and organisational structure that a business uses to deliver products and services to its customers.
Asset management operating models were originally designed to manage and process data.
Over the past 30-40 years, asset management operating models have grown in complexity and sophistication in line with: the growth in data volumes; the growth in the range, complexity and quantity of data processing that must be performed; and the increase in the speed at which data must be processed. The fundamental characteristics of asset management operating models, however, have not changed; they have just got better at doing more of what they have always done: process data.
Asset management organisations have evolved into data processing behemoths. And that’s done nothing to prepare them for the digital transformation of the industry; in fact, it’s done the opposite.
Where’s that wood gone?
Since the financial crisis of 2008, the relationship dynamic between asset management organisations and their clients has significantly changed.
One of the key elements of this new dynamic is transparency, a word that is now used extensively in asset management. There are really two types of transparency that investors want:
These are not the same thing. Providing investors with lots of detail won’t necessarily help them to understand what’s happening with their investments; it won’t help them to see the wood from the trees.
Investors want different things at different times. Sometimes they want more detail, sometimes better understanding; sometimes they want both and sometimes neither because their priorities have moved elsewhere. Sometimes they want to see the trees, and sometimes they want to see the wood.
Since 2008 the demand from regulators and investors for transparency of detail has increased and asset management organisations have struggled to meet it. The challenge has been one of operational efficiency. The problem has not been that operating models cannot provide the required detail; the problem has been the cost of providing it.
Over the same period, asset management organisations have also struggled to meet the demand for greater transparency of understanding. The challenge here, however, has been more fundamental; it has not been about operational efficiency.
Providing transparency of understanding requires something more than providing more data; it requires a value-added customisation process in which data is both enriched and presented in a way that meets the needs of individual investors. In other words, it requires data to be both enriched and presented in a client-specific context.
For example, two investors with different investment objectives may invest in the same fund. Providing both with the same information about the fund will provide detail about the fund but won’t necessarily help each of them to understand whether their investment objective will be achieved. To provide transparency of understanding, each investor needs to be given a different bit of additional data about the fund (client-specific enrichment) and have similar information presented in different ways (client-specific presentation).
When asset management organisations produce customised client reports what they are doing is enriching and presenting data in a client-specific context to provide transparency of understanding.
The problem with providing transparency of understanding is that asset management operating models have evolved to manage and process large volumes of data in standardised ways to increase operational efficiency. They have not evolved to enrich and present data in a client-specific context.
Systems process data, people understand content
If you have ever worked in the back or middle office of an asset management organisation you will be familiar with the sinking feeling that results when someone tells you that an output from one of your processes needs to be customised for an individual fund, client or user. All that’s happening here is that someone is asking for the same output to be presented in a different context, and that shouldn’t be a technical challenge anymore, for any organisation.
However, because of the evolutionary path that their operating models have followed, it is still a technical challenge for most asset management organisations. Even worse is that some of them have, as a defensive measure, developed a culture of ‘standardisation’ with zealous conviction in the belief that customisation is a bad thing, something to be avoided at all costs. These are the organisations that will struggle most to leverage the power of digital technology.
The growing demand for transparency of understanding has exposed a large disconnect between the outputs produced by the processes and systems inside asset management organisations and the inputs that investors and digital channels want to receive. The outputs are standardised data; the inputs need to be context-specific information, which we call content. This data-content disconnect creates a severe challenge for the implementation of digital strategies in asset management.
Data is the currency that systems exchange with one another; content is the language that digital channels use to interact with people.
When information is distributed via digital channels it is not distributed as data, it is distributed in a bespoke context for individual users. When I log on to my Amazon account I get a set of product recommendations based on my personal history of buying and viewing products. This isn’t data, this is data that has been enriched and presented in a client-specific context.
Sticking plasters, wooden legs and ostriches
The pain created by the data-content disconnect will become more acute as asset management organisations are forced to put more and more effort into leveraging digital technology.
The pain doesn’t arise just because data and content are different. Information is distributed via traditional channels in static aggregated form, as documents such as client reports, factsheets, and KIIDs. It is distributed via digital channels in dynamic component form such as a chart of performance history that can be re-scaled, or a pie chart showing top 5 holdings into which the user can drill down to see more detail.
What I see asset management organisations doing is deeply worrying. Many have never really embraced the culture of customisation for client communications via traditional channels, and so their digital journey is not starting from a good place. To address this deficiency, organisations are importing know-how and technology from outside the industry and this is leaving them exposed to PIE2 (see my last post for an explanation of PIE2). What I see happening is a bifurcation in asset management operating models, with one branch focused entirely on digital channels and the other focused entirely on traditional channels.
This is crystallising the data-content disconnect within asset management operating models, not fixing it. It is a classic example of putting a sticking plaster on a wooden leg. It will create severe issues in the future because the same fund information will not be distributed at the same time via all channels.
But what worries me most is that asset management organisations seem to be in denial about this developing issue; it’s a sticking plaster put on a wooden leg by a digital ostrich.
Digital disruption or digital disaster?
We started this series of posts by questioning whether digital technology has actually disrupted the asset management industry in the way that it has disrupted other industry sectors, that is to say in a positive way that has changed consumer behaviours, re-invented their needs or re-calibrated their expectations.
But what is of greater concern is that the direction in which we appear to be heading could result in digital technology disrupting the industry in a negative way; pushing up operating costs and leaving organisations exposed to regulatory and reputational risk.
The large disconnect between the data processing nature of their operating models and the context-specific nature of digital channels has to be addressed in the right way within asset management operating models. It cannot be ignored and it will not be addressed by creating a totally separate operating model for digital distribution and client communications.
Integrated Publishing Solution's iPlus solution is the cornerstone for organisations serious about building a digital strategy that will work today, tomorrow and long into the future. Read this success story to learn how a global asset manager enhanced sales productivity, transitioned distribution to digital channels and reduced operating costs.
Graham Duncan, CEO and Founder of Integrated Publishing Solutions, has significant practical experience in providing successful integrated digital solutions to the Asset Management industry, from the world's first online portfolio valuation portal for Killik & Co, in the 1990's, through to the current global deployments of iPlus 3.
Dr Peter Ellis brings a deep understanding of the Asset Management industry. Managing Director at Deutsche Asset Management and, subsequently, Investit. Chief Operating Officer and Strategic Advisor to BISAM. Peter brings a remarkable depth of knowledge to the Integrated Publishing Solutions team.
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