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What If Asset Management Could Innovate as Fast as Netflix?

A new era of innovation in asset management, driven by a digital transformation in fund administration

Blog,
Sern Tham – Product Director, Temenos Multifonds

We live in a digital world where our everyday lives have been impacted by the digital revolution. Take video streaming as an example – we now have a massive choice of TV and film on demand to stream whenever we want, and we take for granted that video streaming platforms such as Netflix keep pace with our demands as consumers.

The reason tech leaders such as Netflix have become such a ubiquitous part of our lives is their ability to constantly innovate their offering and improve the customer experience. What sets them apart is the speed at which they can continuously bring forward new products and features, with no interruption to their service.

Now compare this model to asset management – currently, it can take weeks or even months for asset managers and their fund administrators to deploy new code to support a new product launch or align to new regulations. Platforms like Netflix are doing this continuously, with their engineers deploying code hundreds of times every day, maximising their agility and accelerating innovation.

But this is all about to change, and we are now on the cusp of a new era of innovation in asset management which will be driven forward by a digital transformation in fund administration.

A new era of asset management innovation

As technology has transformed the way we watch TV, we are now on the threshold of a new phase in asset management, where open technology platforms will allow a massive increase in the pace at which change and innovation can be enacted. This is already happening in the world of banking and it will revolutionise the way technology in fund administration is deployed.

Asset management has for too long lagged behind other sectors of financial services, but this is now changing. In a survey last September, we found that investment in new technology and digital transformation is now the number one focus in asset management, with 38% of respondents saying it will be their firm’s biggest focus over the next 12 months.

At the centre of this digital transformation is a move away from proprietary ‘enterprise IT’ systems which require long development and upgrade cycles, to a modern architecture which enables much more agile methodologies where changes can be continuously developed, integrated and mobilized into operations.

The spiralling costs of deploying and maintaining complex in-house legacy systems, along with the need to keep up with consumer expectations, has already led banks to increasingly demand innovative, flexible and cost-effective solutions. We are now about to see much wider adoption of this approach in asset management.

A key to this is the move to cloud native technology which will enable fund administrators to rapidly and elastically scale their businesses, while at the same time deliver lower cost of ownership, quicker response times and better access to data. The benefits of becoming cloud native are significant, generating up to ten times in infrastructure savings and over 100 times in faster responses.

Delivery of complex IT migrations is also being transformed with fund administrators now adopting microservices architecture, which builds and delivers IT projects as a series of small, self-contained components. Each component has a single, specific purpose and fits with other components, like building blocks, to create the bigger project. This represents a move away from rigid, monolithic IT upgrades to one where individual components can be replaced or upgraded ‘block by block’, delivering tangible ROI at every step.

Another key technology that will drive this new phase of digital transformation is the adoption by asset management of application programming interfaces (APIs), which provide a ‘gateway’ so that a service provider can provide access to data or services for an external user or third-party provider.

Take Uber as an example – Uber integrates map and location services from Google with payment services from card companies via APIs, and then uses additional APIs to connect drivers with passengers. In the world of banking, APIs are already a tried and tested technology and have transformed the way firms can provide services to their customers.

Adopting open APIs will allow the asset management industry to connect with a wider ecosystem of financial and non-financial technology providers, and leverage their applications and innovations to bring new products and features to market faster. Compatibility is standardised so that collaboration with this wider community of app developers becomes quicker, easier, and lower risk.

One area that will be a game-changer for asset management will be explainable AI. It will provide greater transparency and explainability of AI automated decisions and recommendations, harnessing the power of AI technology to automate manual processes and create seamless customer journeys. At the same time, explainable AI will reduce regulatory risk by providing a clear audit trail behind it for regulators.

All these changes in modern technology will be transformative for the asset management industry. In the near future, fund administrators will be able to move away from rigid release timetables and slow production cycles, to introduce multiple changes in response to client requests or regulation within hours, and support new product launches in days rather than weeks.

But this transformation will require a fundamental rethink of how fund administrators leverage technology. Previously, the main focus has been around costs and efficiencies. But now the key question fund administrators need to begin asking themselves is “how will I be able to compete against those that can deliver the agility and innovation of a Netflix?”.

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Blog,
Sern Tham – Product Director, Temenos Multifonds