Digitalization of Distribution Gains Pace in Asia
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.
When Cerulli Associates, a global research and consulting firm, surveyed asset managers in Asia ex-Japan in 2017, their digital focus was more on enhancing clients’ overall experience using websites or apps, or setting up digital teams. Cerulli’s 2018 survey of managers indicates progress in digital adoption in many other 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.
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.
Rather than compete directly with fintech start-ups, asset managers and distributors should consider potential partnership opportunities with them. 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.
As banks get ready to scale up their digital platforms, one could reasonably argue that their overall distribution marketshare 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 pair will begin with the Sukuk securities.
Scalability, privacy, standards, and regulatory comfort remain the highest hurdles to adoption.
Staff buy-in is as important as the technology.
Big banks, not Robo-advisors, may pose the biggest threat to traditional financial advisors.
Many firm labor under outdated assumptions regarding clients' online appetite.