Asset managers cannot afford to ignore robo-advice and digital ledger technology


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Asset managers need to have clear, realistic strategies in place to avoid being left behind as the pace of technological change within the industry accelerates in 2017 and beyond, according to Cerulli Associates.

The global research and consulting firm, says that managers should not ignore the spread of roboadvice and the emergence of digital ledger technology (DLT).

One of the quandaries for traditional advisors looking to incorporate robo-advice is how to do so without cannibalising existing business or demoralising human advisors. In the case of DLT, or blockchain as it is more commonly known, research suggests that a significant number of managers have adopted a wait-and-see approach.

“As computers get faster and algorithms get smarter the number of difficult choices will increase, but so will the opportunities,” says Barbara Wall (pictured), Europe managing director at Cerulli. “It is tempting to sit on the fence but we believe firms that do so will lose out.”

Cerulli expects that a hybrid robo-advice model, which allows investors to benefit from robo’s lower fees and digital efficiency while bolting on specialist face-to-face consultation, will prove popular. “Firms need to carefully craft their digital solution’s positioning and service model, pricing, and underlying investment products. Most will also likely need help to build it,” says Wall.

Blockchain is a decentralised database on which virtually anything of value can be tracked and traded without the need for third parties or central points of control. At present, there are various barriers to its widespread use, including concerns relating to data privacy, security, governance, the resilience of the technology, and the absence of standardised legal and regulatory frameworks. However, Cerulli believes that the potential rewards – primarily slashed costs and faster transaction speeds – will ensure that solutions are found.

“All asset managers should have a strategy in place that identifies the benefits of blockchain, the barriers to its adoption, and the potential solutions,” says Wall. “Most of the leading global managers are part of consortia exploring various applications, including trading illiquid securities directly with each other.”

Cerulli expects that the adoption of blockchain will be incremental, with the pace of progress increasing as early adopters see the benefits and new models emerge. It will initially be incorporated in areas where systemic risk is slight or non-existent.

“Asset managers clearly have a vested interest in contributing to the establishment of blockchain governance and data management standards. Although adoption will be evolutionary, we believe that blockchain’s impact on operating models will ultimately be revolutionary,” says Wall.

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