From Real-Time Data to Real-Time Value

By JR Lowry, EMEA head of State Street Global Exchange

Investor expectations are scaling new heights. Many require managers not just to deliver performance superior to a benchmark, but they are also looking for them to innovate and make the customer experience a seamless one. These expectations mean investment providers will therefore have to launch highly personalised, digital services to make customers lives simpler.

Investors expect greater transparency around the value they gain from their investment providers, and new regulatory requirements are reinforcing this focus. Transparency is prioritised in initiatives such as the EU’s Markets in Financial Instruments Directive II (MiFID II), US Securities and Exchange Commission’s (SEC) modernisation rule, and the US Department of Labor fiduciary rule.

Firms are having to make changes to their systems and increasingly digitalise their processes to enable such transparency. Larger organisations with significant resources are in a strong position to implement such digitalisation.

Client expectations

In a recent survey by State Street 1 , the vast majority of customers (82 percent) said their investment provider will need to stay at the forefront of technology in the next five years, while 58 percent highlighted that ‘innovative solutions’ will be an important factor when they select firms over the same period.

Asset managers recognise that technology can play a major role in achieving client goals by delivering lower cost and more scalable models.

The same State Street study found 64 percent of retail investors wanted personalised advice while 62 percent expect ‘do-it- yourself’ capability such as tools that enable them to self-manage their investments. There is a growing shift towards low-cost automated investment advice models or ‘robo-advisors.’ Asset managers, who are looking for new ways to distribute their fund vehicles, are carefully assessing digitization as a route to do this.

If firms elect to ignore changing customer preferences, they will inevitably see their market share decline. Firms must also be aware of the generational changes happening across the investor horizon. Millennials and digital natives have grown up using hyper-convenient digital services and apps, which have simplified their lifestyles.

This demographic – which often demands immediate gratification and accelerated delivery of services – is more uncompromising than older generations if expectations are not fulfilled.

The State Street research found that 42 percent of Generation X will change investment providers if they are dissatisfied with the service, but this figure rises to 65 percent among millennials. If firms deliver a service, which is unsatisfactory or not deemed tech-savvy, millennials will take notice and not invest.

Maintaining the status quo is not recommended

Retaining a traditional approach to investor transparency is ill advised. Younger investors simply do not want to receive a quarterly performance report in the post. Such materials need to be distributed online or through mobile apps compatible with tablets and smartphones.

Many firms are trying to broaden their investor base through targeting millennials, and are hiring younger people and giving them more responsibilities in order to achieve this outreach. This has resulted in greater technological innovation at asset managers.

Trust and brand reputation are important

It is also crucial that established players highlight their brand and ensure it resonates with prospective clients. Fifty-three percent of respondents to the State Street study said they trusted established wealth service brands more than newer entrants.

Furthermore, 46percent of investors said it was crucial for firms to maintain trust and brand reputation. Having a strong brand and industry-wide credibility should correlate with successful capital-raising, as 60 percent of investors rank brand as one of the most important qualities they will look for in firms over the next five years.

Established firms are clearly in a stronger position in this regards than the newer players to the market.

1 Finance Reimagined: Finding Long-Term Value in a Digital Age. Data taken from Wealth and Asset Management 2021, Roubini ThoughtLab, sponsored by State Street. Based on extensive quantitative analysis of 2,000 investors and 500 wealth firms; economic modelling and forecasting across 25 countries; and expert opinions from more than 40 market leaders, economists, technologists, and investment specialists.