The asset management industry is experiencing unprecedented disruption. New technology and models for investing provide innovative ways of advising and serving clients, but what do these advancements mean for businesses and individual investors?
On September 25th, Odgers Berndtson partnered with the Toronto Region Board of Trade to host a lively lunch-time panel discussion, focused on “The Future of Investing: Disruption in Asset Management”. The panel shared their insights on driving innovation, challenging the status quo and how businesses can adapt and thrive in this rapidly changing environment.
Panelists included: Darcy Hulston, President and CEO, Canoe Financial – an independent Canadian investment firm; Stephanie Choo, Managing Partner, Portag3 Ventures -- a Fintech-focused venture capital fund; and Neil MacDonald, Managing Director, Product Management and Innovation at Scotia Global Asset Management. The event was moderated by Jennifer Norrie Booth, a Partner in the Financial Services Practice at Odgers Berndtson.
The Fundamental Shift in Asset Management: Disrupt Yourself
With assets under management predicted to rise to $101 trillion by 2020, all three panelists agreed that firms in this space need to be constantly pivoting to respond to consumer demands and to maintain their competitive edge.
What’s driving the need to recalibrate? According to Neil MacDonald from Scotia Global Asset Management: “we’ve moved from tailwinds to really, really strong headwinds.” He explained that “while discussions used to focus on asset investment strategy, ‘the future of the asset management business’ has become the hot topic around the C-Suite and at the board level.” He went on to describe several of the “strong headwinds” he has observed over the last few years, including:
- More normalized returns structure
- Digital disruption
- Compliance; increased burdens to come to market and align with new regulations
- Changes in the dynamic between asset product pricing versus dealer pricing
- Decreasing growth rates
- Shrinking margins
Stephanie Choo, Managing Director of Portag3 Ventures, also noted changing consumer service expectations, in particular from a huge segment of the population who has been dramatically underserved by traditional structures: Millennials.
She said observations of the US and the UK markets indicate that this segment of investors will only continue to grow, and Portag3 maintains that asset management organizations need to innovate with new, digital models in order to serve this burgeoning demographic. With a 100-million-dollar investment in WealthSimple, Portag3 is putting their money behind robo-advisors and other innovative Fintechs, and because they aren’t a traditional venture fund, they can play the long game in their investing strategy.
Stephanie also noted that Portag3 is closely watching how new technologies--like artificial intelligence and blockchain-- will intersect with financial business practices from the front to middle and back offices. Portag3 views their investments in Fintech not only as industry disruptors, but also as opportunities to disrupt other companies held by their parent organization, Power Financial.
Strategies to Adapt to a Changing Industry
In order to adapt and thrive in this dynamic ecosystem, the panelists shared a few different strategies for survival.
Be active, agile and awesome at what you do.
As a strictly active asset manager, Canoe Financial doesn’t touch ETFs or passive investment strategies. Canoe manages close to 5 billion in assets, which means they can be agile enough to reposition some of their larger investments with a variety of trading strategies. “You can’t be awesome if you’re too big and unwieldy” says Darcy, while describing an innovative clean energy project they’ve invested in, which stores energy in the salt caverns underneath Billy Bishop Airport. “We’re going to continue finding these unique opportunities and we’re going to stay nimble. You’re not going to get access to that kind of project through an ETF.”
Protect and pivot
Neil shared that a key tenet of Scotiabank’s strategy is to “protect and pivot”; to protect the legacy business that they’ve spent a long time building, but also to become more flexible through digital transformation, to respond to inevitable pivots that will be critical over the next 3 years. He explained that Scotiabank’s investment management platform and their advisor-client experience have been undergoing dramatic transformations. “We’re aiming to disrupt the disruptors,” he teased “You’re going to start to see some things from big players that you may not have expected 5 years ago”.
Be transparent & establish trust
Stephanie stressed the importance of establishing trust in this new digital environment. “Without human-to-human interaction involved, it’s extremely important for us to be transparent,” she said and continued to explain that it’s crucial for their WealthSimple customers to be able to follow and understand exactly what they’re paying for and at what time during the process. “The fundamental construct Portag3 uses to guide all investment decisions across their portfolio is: ‘Will this company do what’s in the best interest of the customer?’” And with client expectations shifting, she also noted that distributors who fail to innovate in how they're interacting with clients won't survive.
In the end, all panelists concurred that embracing the innovations developing from Fintech and leveraging them to improve the human-to-human advisor-client experience is certainly an opportunity to move the industry forward. “Any technology that helps investors find us faster is awesome,” Darcy shared. “It doesn’t spook me at all.”
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