Asset managers risk being left behind in robo-revolution

Asset managers risk being left behind in robo-revolution

Asset managers are at risk of being left behind because many are failing to have a clear strategy in place for dealing with technological change, a research provider has warned.

Research from consultancy firm Cerulli Associates found a large number of asset managers have adopted a ‘wait-and-see’ approach when it comes to adapting to the digital landscape, including the evolution of robo-advice and Blockchain.

This comes despite several asset managers being seen to step up their enquiries into how Blockchain could cut costs and ease the burden of regulatory requirements.

A blockchain is a public ledger of all Bitcoin transactions that have ever been executed.

Barbara Wall, managing director of Cerulli’s European arm, said the number of difficult choices will increase as computers get faster and algorithms get smarter.

While she admitted it is tempting to sit on the fence, Ms Wall warned firms risk losing out.

“Asset managers should not ignore the spread of robo-advice and the emergence of digital ledger technology,” she said.

Cerulli expects a hybrid robo-advice model, which allows investors to benefit from digital efficiency while bolting on face-to-face consultation, will prove particularly popular. 

Ms Wall said firms are likely to need help when it comes to building their digital strategy, pricing, and underlying investment products.

But she said one of the dilemmas for traditional advisers looking to incorporate robo-advice is how to do so without cannibalising or demoralising their existing business.

Cerulli also pointed to digital ledger technology, otherwise known as Blockchain, which is a database where anything of value can be tracked and traded without the need for third parties.

Despite there being barriers to its widespread use, including concerns about data security and the absence of standardised regulatory frameworks, the research firm said the adoption of Blockchain will be “incremental” by cutting costs and speeding up transactions.

"Asset managers clearly have a vested interest in contributing to the establishment of Blockchain governance and data management standards,” Ms Wall said, adding Blockchain's impact on business models will be “revolutionary”.

Scott Gallacher, director at Leicester-based Rowley Turton, agreed with the points Cerulli made on robo-advice.

"The rise of robo-advice is perhaps the next significant threat to active fund managers distribution, as many robo-advisers tend to favour passive strategies in order to keep costs low.

"This may not be an immediate concern, but if robo-advisers do become established then this will be at a cost to active fund managers as much as advisers."