In a new report ‘Asset & Wealth Management Revolution: Embracing Exponential Change’, PwC anticipates that global Assets under Management (AuM) will almost double in size by 2025, from US$84.9 trillion in 2016 to US$111.2 trillion by 2020, and then again to US$145.4 trillion by 2025. While the report predicts rapid growth for the asset & wealth management industry, it also warns that firms needs to take action now, if they’re to survive an exponential level of change.
An alert that we want to better understand together with Paolo Brignardello, Chief Commercial Officer at FundsDLT, who – after his participation to the last edition of Milan Fintech Summit – explained us what is happening in the market with a particular attention to the next trends to monitor, opportunities to catch and challenges to face.
Brignardello, investments in funds today are not only the best savings tool, but they are an added value for looking to the future in times of crisis like this. But what is the real state of the art of the operational management of these financial instruments?
“From the point of view of operations, the way investment funds are distributed is changing. There are two facets to this change. The first is enabling the end investor to have easier and better access to these financial products. The second relates to improving and make more efficient the interactions between the various institutional actors in the fund distribution chain. The current model has been built up over many years and, while it works, it shows itself to be less and less adaptable to the new needs of the market. Many existing processes are manual and there are redundancies throughout, with companies performing the same task separately. In short, the fund distribution chain is heavily intermediated and the various actors in the chain – asset managers, distributors, registrars, transfer agents and so on – are siloed and do not work together effectively or in a cost-effective manner. The same information and data may be held in unconnected and disparate data files and spreadsheets. To respond to this, what is needed is an entirely new backbone infrastructure that permits fund distribution actors to be in a position to face the future and grow in a new environment. This infrastructure is based on distributed ledger technology or DLT. Such an infrastructure is decentralised and shared across all actors. As for the end investor, the fund industry is somewhat unique in that fund and asset managers know very little about who is actually buying their product. In most European countries, fund distribution is set up to deal with institutions or fund distributors. As a result, they are not used to dealing with large numbers of retail investors with small amounts to invest. Furthermore, what investors want is changing. They see how efficient and easy other transactions are because of digitalisation and expect the same level of service when investing in funds, in particular, they want a better and less onerous onboarding process and easier access to information. All these are simply not possible today with the existing operational and business models, as well the IT systems in place. To sum up, fund distribution is undergoing a complete digital transformation”.
What are the opportunities and the challenges of digital transformation in funds management industry?
“Above all there are increased operational efficiency and cost reductions for all companies involved in investment fund distribution. Digital transformation enables automation of many manual processes, reducing errors and improving overall efficiency. Investors also have a better customer experience. By leveraging digital technologies, fund management and asset management firms can offer personalized and convenient experiences to their clients. Digital transformation allows firms to reach new clients in new markets, both domestically and internationally, and makes investing in funds more accessible. An example of this is the Beewise investment app. This was introduced last year by Azimut and is powered by FundsDLT. It is aimed at young, retail investors and enables direct, fully digital investments of as little as 10 euros. In addition to a digital client experience, there are greatly improved data analytics. There is much data in the fund distribution chain and today almost all of it is either under-exploited or completely untapped. Distribution actors can share data and transaction information in a way that will open up new opportunities. Additionally, the use of big data analytics and artificial intelligence can provide deeper insights into trends, helping firms make better decisions. Notably, for the digital transformation of fund distribution, there is the enormous opportunity created by the tokenisation of fund shares and units. On the other hand, the biggest challenge is reaching these goals. Transitioning to a new infrastructure is not a “big bang” changeover and solid ongoing change management is required. In addition to the technical difficulties of changing complicated, 20-year old systems, there are the problems of talent management – finding and retaining the right talent with the necessary skills to drive digital transformation – and overall resistance to change. For all these reasons, step-by-step or incremental changes are best and, therefore, working under Agile frameworks enables fund firms to take the first steps easily”.
What are the current and future possible barriers for the adoption of a blockchain-based infrastructure like yours for credit operators?
“Despite the potential benefits of blockchain or DLT-based services for investment fund distribution, there are a number of barriers that need to be overcome for widespread adoption. Nevertheless, optimism remains high. In a recent survey carried out by Broadridge, 60% of respondents agreed that “in 10 years blockchain and DLT will become the core of financial markets infrastructure.” Firstly, the regulatory landscape in this area is still evolving in some jurisdictions, which can make it difficult for companies to implement these services. As with any new technology, it takes time for regulators to adapt to the changes it brings. Secondly, there is the issue of industry-wide interoperability. Currently, there are different blockchain platforms and protocols, and it is important for them to be able to work together in order to achieve widespread adoption. This can be a challenge, especially as the industry evolves and new platforms emerge. However, as the technology evolves and the regulatory landscape becomes more defined, it is extremely likely that the adoption of these services will increase, leading to a more streamlined and efficient investment fund distribution process. Companies like FundsDLT continue to work with regulators, technology providers, and industry participants to overcome these barriers and drive the adoption of blockchain-based services in the investment fund distribution industry”.
Looking to the future, what are the technological trends and innovations that will contribute to the diffusion of an ecosystem like yours?
“An infrastructure for fund distribution based on DLT will have great impact, but it is part of much wider changes in the fund industry. Financial services as a whole are moving to the Cloud, which gives new ways to connect, collaborate, do business and build bridges between business processes. APIs, or Application Programming Interfaces are increasingly in use. They allow companies to easily share data with users and simplify development and deployment of services. Crucially, they also interoperability of an entire ecosystem and enable the emergence of new business models. The use of data in the fund industry is changing and this requires big data analytics and artificial intelligence. A decentralised, shared infrastructure such as the one FundsDLT offers, enables actors to access data, in a permissioned way, from other components of the infrastructure. Returning to the existing situation in fund distribution, currently data is inconsistent, expensive to retrieve and share and the quality is variable. This is mostly because of the multiple actors holding multiple, separate databases. Having more and easily accessible data throughout distribution chain means that the ability to predict behaviour, monitor trends and tailor products is enhanced leading to personalisation and hyper-personalisation. Overall, these changes are part of a shift to an “as-a-service” model for the entire industry”.
