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Asset managers urged to prepare for technology-driven "seismic shifts" in customer demographics and behaviour

Out-Law News | 16 Jun 2014 | 4:20 pm | 2 min. read

Asset management firms must evolve to meet the needs of a new type of consumer who will require more personalised products that they can research and purchase online, according to KPMG.

In a new report, the professional services firm predicted "seismic shifts" in the global asset management industry over the next 15 years as a result of technology-driven changes in client demographics and behaviour. It said that the number of firms operating in the global market could fall by half by 2030 as firms that did not adapt to the changing market were "marginalised and taken over".

"New entrants, who aren't plagued by legacy issues and outdated clunky systems, will thrive as they can move quickly to implement more relevant digital and data strategies," said Ian Smith of KPMG. "Trusted brands that resonate and appeal to a more diverse client base, as well as the younger generation, may be able to build scale quickly."

"We could see the Apples, Googles or large retailers of the world becoming the next big powerhouses in investment management. As such, we expect to see mass consolidation in the industry and predict that within 15 years there will be half the number of players currently in the market," he said.

Asset management firms are currently investing "significant amounts" in IT, according to the KPMG report. However, they tended to spend in order to address legacy issues or meet current regulatory requirements such as those of the Alternative Investment Fund Managers Directive (AIFMD) and Solvency II, rather than on supporting and exploiting 'big data' and data analytics to drive investment performance or understand and meet the needs of the next generation of clients, the report said.

KPMG said that by 2030, most people buying investment products would do so online rather than through a face-to-face adviser. Many would also make purchases based on their own research and the advice of online communities and their social networks rather than following the advice of professionals, it said. Brands that resonate strongly with young people, such as Google or Apple, could also take advantage of their huge client bases and brand ubiquity to deliver investment management products, most likely in partnership with established players, it said.

"Demographic transformation, combined with technological advancement and social shifts, will significantly change the profile, needs and requirements of investors," the report said. "Clients will be considerably more diverse in terms of who they are, where they are located and what they need, want and expect from the industry. In order to effectively target and service this increasingly diverse client base, we believe client profiling, data analytics and operational flexibility will play increasingly important roles going forward."

"Operational flexibility and agility will become key competitive advantages. While asset managers have been working diligently to improve operational flexibility, cost flexibility and to incorporate new technologies and new media into their existing infrastructure, we believe much of this work has been focused on addressing the legacy of yesterday and issues of today rather than preparing for the future. Going forward, some tough decisions may need to be made," it said.

The report said that fund managers should focus less on those investors with readily available cash and instead begin to build 'cradle to grave' relationships with a more diverse set of clients. It also highlighted opportunities among the growing middle classes in developing economies such as China, Mexico, India and Nigeria.