By Dan Houlihan, Executive Vice President & Head of Global Fund Services, Northern Trust
The investment management industry has always been drawn to buzz words. Today, we are continually inundated by terms like robo, big data, cloud, cyber and the digital revolution. While in the past the buzz words have led to measureable evolution, this time it looks and feels a bit different. The convergence of these very real and at times disruptive capabilities feels a bit more transformational. Like many technology trends in investment management – it will likely be a “trickle-down transformation”. Larger institutions have greater access to the real and human capital required to transform while the middle and lower tier of the market will likely lag in their acceptance. However, firms in this category may be able to gain competitive advantage through faster adoption.
Robo-advisors have already displaced some level of human stock selection through big data, predictive analytics and the avoidance of emotion. On the operational side of investment and fund operations, robotic process automation continues to enable levels of efficiency far beyond what was possible a decade ago. Robotics are being used today to perform reconciliations, data entry and any number of histrically manual processes.
According to Jim Fitzpatrick, President of industry organization NICSA “We’re seeing continued take-up of robotics across our member firms. Some of our asset manager members have acquired or are building Robo-advisors, our service provider members are implementing robotic automation capability and our fin-tech members continue to develop advanced robotics capability”. Buzz word or not, Robotics continues to garner focus and investment across the industry. Time will tell how far the robots will creep into the human capital side of the industry but we expect these innovations to continue to gain traction. A firm’s ability to leverage or balance this freed up capital against continued fee pressure then becomes critical.
Cyber security, perhaps the single largest threat to our industry, continues to take a front seat from the Board room to the conference circuit. Fitzpatrick says, “Every Fund Board and every Corporate Board in the industry have cyber at the top of their agenda to ensure the continued safety of client data. An increasing portion of the best practice and education work we do at NICSA revolves around cyber security – and it has to”. While a buzz word by definition, cyber security continues to be one of the top technology and human behavioral priorities in our industry. Most large firms are working closely with fin-tech companies, local and federal law enforcement and the intelligence community to safeguard their client data against a broad set of threats including: wire fraud, ransomware and espionage. Cyber security has fast become a distinct domain within the technology and risk functions charged with detecting, protecting and responding to multiple external and internal threats.
The so-called digital revolution continues to transform the way asset managers gather assets and service clients. Mobile commerce continues to outpace traditional business practices with social media, big data, analytics and mobility solutions that extend far beyond the desktop PC of a decade ago. To remain competitive, asset managers must constantly evaluate their digital strategy, including behavioral analytics to optimize their distribution, client retention – and product development.
Underpinning these trends is the consummate buzz word; big data. How can investment managers leverage emerging big data technologies to create demonstrable value from an immense data set spanning companies, markets, people and their behavior.
Northern Trust recently sponsored a study by The Economist Intelligence Unit (EIU) through which we found that, on the whole, managers are finding tools and technologies to help them extract more value from data. However, a closer look shows a wide variance – with some institutions benefitting substantially while others are failing to gain any advantage. Finding direction in the “sea of data” requires a clear plan and firm leadership. In other words, the quality of an organization’s data strategy – and the presence of strong leadership to deploy and enforce that strategy – can mean the difference between value creation and pure expense.
“We see many of our members leveraging big data technologies like Spark and Hadoop to manage massive data sets – then lay in analytics packages to extract value – whether it’s investment decision-making, managing or measuring risk – or looking at behavioral trends” says Fitzpatrick.
It is clear that Robo-advisors, cyber security and broad digital strategies all rely on big data concepts and technologies to extract value. The intersection of these capabilities can provide improved investment results, safer client data, reduced risk, enhanced asset gathering, client retention and improved productivity; all important value drivers for an investment manager. This time it feels like the buzz words matter.