3 minute read 18 Sep 2019
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How investment firms can compete when “what if” becomes “what is”

Authors

Mike Lee

EY Global Wealth & Asset Management Leader

Spirited leader for wealth and asset management. Champion for change. Driven to produce better outcomes and simplify the complex. Passionate about family, friends and sports.

Mark Wightman

EY Asia-Pacific Wealth & Asset Management Advisory Leader

Leveraging technology and cultural change to drive the future of wealth and asset management. Global traveller with an Asia Pacific focus. Thought leader. Educator. Father.

3 minute read 18 Sep 2019

Firms must leverage new technologies, changing regulations and customer expectations to best position themselves in an evolving ecosystem.

Earlier this year, we imagined that wealth management would become as convenient and engaging as online shopping or social media. We asked “what if wealth was a service,” and explored how traditional and nontraditional players could collaborate to offer proactive, hyper-personalized investment advice delivered through a digital intermediary.

Fast forward to September, and our fantasy is now becoming a reality – especially in Asia-Pacific, where technology is advancing faster than anywhere in the world.

New partnerships drive innovative services

Asia-Pacific (APAC) hubs including Hong Kong and Taiwan in China as well as Singapore, Korea and Malaysia are now granting licenses to “virtual” or “digital banks,” which deliver products and services digitally rather from a physical branch. These power consortiums comprised of FinTech, big tech, nontraditional and traditional players stand to offer far more than traditional financial services firms. Each party brings a special expertise to help drive service innovation and create new customer experiences.

These power consortiums comprised of FinTech, big tech, nontraditional and traditional players stand to offer far more than traditional financial services firms.

Because of their low operating costs and consortium construct, virtual banks also offer an opportunity to provide services to the underbanked. In Singapore, for instance, the license eligibility criteria specifically details the need to reach under-served segments of the local market such as gig workers.

Recently, an APAC-based FinTech firm that provides money management and tax services to the self-employed announced it is partnering with a food delivery provider to help riders meet their tax obligations and grow their retirement savings. How convenient!

More and more, we are seeing regulatory changes create new opportunities (e.g., virtual banking in APAC and open banking/PSD2 in EMEIA) for firms to think globally and leverage new technologies.

Nontraditional entrants gain momentum

Tech-savvy companies ranging from food delivery services to travel agencies have access to loads of valuable customer data along with the right distribution methods in place. This allows them to build out their current services and create new revenue streams with a complimentary offering, though they must be mindful of operating in a strongly regulated financial services industry. For example, a travel agency might seek to provide a service that helps customers save for future vacations, allowing the agency to own the lifecycle of your next holiday.

Nontraditional players are moving with speed, keeping the customer at the heart of what they do and taking on complex regulatory requirements, even if it means “failing fast.” This “fail fast” and iterate approach is not in the DNA of large financial services firms, who are often so risk averse they foster a “can’t do” culture.

Firms must place a greater focus on putting the customer at the heart of their platform. One way they can do so is by formally appointing a dedicated Chief Client Officer (CCO), something we’re starting to see in the investment management world today.

As more nontraditional companies realize they have the distribution capabilities to offer investment services, they are taking more and more business from traditional players. So while we have yet to witness one of the tech giants capsize the industry, these smaller nontraditional players could eventually create the same effect.

Evolving ecosystems

We hear the word ecosystem thrown around often in this industry, but what does it really mean? Having earned his Master’s Degree in Zoology, Mark knows a thing or two about how organisms interact with each other in their physical environment. In the wild world of business, an ecosystem is the community in which a network of interconnected organizations interact.

New ecosystems are being created everyday as players from different industries cross-fertilize services to cater to end clients. The game-changing reality is that many of these nontraditional entrants do offer a more holistic, differentiated product or service. So what must today’s traditional firms do to compete?

Approach geography with an open mind

Firms must consider where they operate from a geographic standpoint. Historically, firms look to Silicon Valley in the US to innovate and to India for offshoring. But as other regions begin to leapfrog in tech and data advancements, why not look to commercialize and scale in new locations where innovation is thriving and talent, grants and regulation help drive success? More firms are beginning to leverage this concept, including several global investment firms that are using Asia as a base to drive innovation in areas such as intelligent automation and artificial intelligence.

Identify your firm’s role

Firms must determine the role they want to play within this ecosystem. Will you own a platform, be part of a platform or contribute by being a product provider? Will you buy, build or partner?

For example, what if a Middle East-based firm trusted for their conduct and culture was looking to build their business in the US? To help gain momentum in the market, they may want to partner with a US firm that is trusted for data privacy. This would allow the Middle East-based firm to establish trust in a new market related to both conduct and culture as well as data privacy.

Create success through distinctiveness

Once a firm determines its role in the ecosystem, it must determine how it will be distinct. A firm must identify how it will differentiate itself from competitors and clearly define the value it can deliver to customers. Most importantly, customers must trust that their firm will deliver this service well.

So how will you leverage changing regulations, customer expectations and new technologies to best position yourself in this evolving ecosystem? Will you defend or disrupt; transform or innovate; diversify or focus? Read more on the essential decisions your firm must make to create an optimal business strategy in our NextWave Consumer Financial Services research (pg. 48).

Summary

New ecosystems are being created everyday as players from different industries cross-fertilize services to cater to end clients. The game-changing reality is that many of these nontraditional entrants do offer a more holistic, differentiated product or service. Find out what today’s traditional firms must do to compete.

About this article

Authors

Mike Lee

EY Global Wealth & Asset Management Leader

Spirited leader for wealth and asset management. Champion for change. Driven to produce better outcomes and simplify the complex. Passionate about family, friends and sports.

Mark Wightman

EY Asia-Pacific Wealth & Asset Management Advisory Leader

Leveraging technology and cultural change to drive the future of wealth and asset management. Global traveller with an Asia Pacific focus. Thought leader. Educator. Father.