As the field faces continuing risks, more are looking to improve their office infrastructure and data analysis capabilities
Canadian asset managers continue to face risks from fee-reduction pressures, tightening regulation, and other concerns. But the industry is still cautiously optimistic as firms see a path forward through technology.
In its latest survey of the Canadian asset management industry, KPMG identified the broad push for lower management fees (60%), increasing regulatory complexity and cost of compliance (52%), and cost challenges and squeezed profit margins (50%) as among the top risks in 2019.
Those were broadly the same as the risks identified in previous surveys, suggesting a Sisyphean quality to the challenges besetting asset managers. In spite of this, an 83% majority have remained even-keeled, neither more pessimistic nor more optimistic on the outlook for their industry. Additionally, 26% were significantly more optimistic of their organization’s prospects.
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A sizeable part of that confidence comes from perceived opportunities in technology. Nearly two thirds (64%) see a chance to evolve by “enhancing operational processes and the use of technology” within their organizations. From an industry perspective, 48% saw promise in data analytics to enhance product design, marketing, and pricing, along with improved operational processes and use of technology
“Across all financial services sectors, people are starting to see the value of bringing technologies like artificial intelligence, machine learning, or automation into their businesses — especially from a margin perspective,” said James Loewen, partner and National Sector Lead for Asset Management.
The transformative potential of technology cuts across different areas of operation. When asked where they expect tech investments to have the most impact, 85% cited an enrichment of the client experience; 83% cited improving data governance; and 79% answered with enhanced middle offices and clearing services.
But when asked where they are planning or implementing upgrades throughout the entirety of their organizations, back-office systems accounted for the largest proportion of responses (45%). Among those eyeing or working on back-office tech upgrades, 47% said they were looking for improvements in product support through external client reporting; 32% were concerned with controlling organizational costs from real estate, employee costs, and overhead; and 21% were focused on regulatory compliance and reporting.
“While regulators are in support of using technology to enhance compliance, the ROI from these technology investments have not yet been realized,” said Joseph Micallef, National Tax Leader, Financial Services, KPMG in Canada. What’s holding that area back, he said, is a lack of trust in the outputs and robustness of such platforms among both regulators and asset managers.
Data and analytics (D&A) is also getting more attention, with more firms recognizing the promise that data analytics holds in assisting portfolio managers. But even as such capabilities have proven fruitful in a wide range of industries, the adoption of D&A tools, systems, and skills has been slow among Canadian asset managers. This is not due to fear, according to KPMG, but caution — something sorely needed as the magnitude and impact of cyber threats become more apparent.
“Bringing D&A into an organization isn’t an overnight task,” said Peter Hayes, Partner and National Leader for Alternative Investments, KPMG in Canada. “Even the big shops who are making noticeable investments in D&A are doing so cautiously to make sure it’s being done right and that it will achieve their specific business objectives.”