Technology to play greater future role in fund distribution

Acknowledging that technology will play an ever-increasing role in the fund sector, asset managers should consider partnering, rather than competing with, fintech start-ups

The role of technology in shaping the fund industry is more pronounced in distribution than in other areas, with the emergence of online platforms and robo-advisors slowly eroding the stranglehold of banks on the regional distribution landscape, according to a global research and consulting firm.

The Cerulli Associates survey of asset managers in Asia ex-Japan for 2018 of managers indicates progress in digital adoption in many areas, such as artificial intelligence (AI). The survey also found that a majority of managers see a greater role for digitalization in distribution, compared to portfolio management.

Banks still dominate Asia's asset management distribution, but the landscape is slowly changing with the proliferation of online platforms. This is especially so in China, which, given its asset size, has a great influence on regional distribution. Since 2013, when online money market fund Yu'e Bao was introduced, there have been rapid developments in China's mutual fund distribution landscape, with e-commerce platforms growing in prominence. Asset managers in China have begun to upgrade their online platforms as well as use third-party payment platforms to sell their products.

Rather than compete directly with fintech start-ups, asset managers and distributors should consider potential partnership opportunities with them, according to Cerulli. In doing so, asset managers could minimize the risks of investing in new technologies, and leverage the technical strengths of these start-ups, in areas such as big data and artificial intelligence.

Cerulli views digitalization tools as distribution enablers rather than disruptors in serving clients more effectively. Excluding those in China, online platforms have not made a significant impact, despite the emergence of a slew of robo-advisors in markets such as Hong Kong and Singapore. Such alternative modes of distribution are welcome, though, in breaking the dominance of banks. Over a longer term, online platforms could help improve the access to financial advice for the underserved populations in many of Asia's emerging markets.

Robo-advisors are also influencing the distribution landscape, not just in terms of assets, but also in terms of business strategies, as large banks, independent financial advisory platform providers, and even managers start building up their robo-advisory capabilities. As robo-advisors try to gain the necessary scale, those with large clients and which can offer ease of transactions may act as enablers for the mutual fund industry in enhancing distribution reach. Those who have not might be acquired by banks or even asset managers. Indeed, this has already happened, and could continue to take place.

As banks get ready to scale up their digital platforms, one could reasonably argue that their overall distribution market share could further decline to some extent, as at least a few prominent platforms could make sufficient progress to make their mark in online distribution over the next 10 years, the consulting firm suggests.


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