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Where Investment Firms Are Heading With Tech in Next 5 Years: Roubini ThoughtLab

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Data analytics, cloud, mobile and social media will become utility technologies for investment firms by 2022, according to a new report from Roubini ThoughtLab.

From April to June, the Roubini ThoughtLab team — which was co-founded in 2015 by noted economist Nouriel Roubini — surveyed a spectrum of 1,503 investment providers from around the world and conducted 42 in-depth interviews with senior executives from financial institutions, consultancies and technology firms.

“By 2022, it will become the norm for wealth and asset management firms to engage digitally with their customers, who will look to the internet and social media for information on investments,” the report states. “Although offline communication — like phone calls and face-to-face meetings — will continue to be important for investors, communication through smartphones, telepresence, webinars and online chats will rise dramatically.”

According to the report, the starting point for a digital-first customer experience is simplified digital client onboarding. The Roubini ThoughtLab team finds that 39% of firms are already offering digital client onboarding to retail customers, and 48% to institutional clients.

By 2022, the use of online methods will rise as offline methods decline, according to the report.

According to Roubini ThoughtLab’s research, by 2022, 69% of investment providers will be offering digitally enabled client onboarding. More specifically, about 75% of firms servicing institutional clients will use digital client onboarding vs. 63% of those servicing the retail market.

The report finds that about 74% of full-service banks and alternative investment firms will offer digital onboarding by 2022, followed by 73% of mutual fund companies and 72% of retail banks.

“With firms like Amazon, Apple and Netflix revolutionizing the customer experience, investment providers will need to reframe their customer interactions for a digital-first world,” the report states. “Communication through digital channels will predominate in wealth and asset management, as firms harness technology to reach clients and power most investment activities. Adapting the channel mix, providing 24/7 digital access, and leveraging analytics will be vital for creating a seamless investor experience that people now expect.”

According to the report, an “agile” cloud-based system provides the groundwork for digital leadership.

More than half (53%) of providers surveyed plan to use a cloud platform to replace their legacy systems, particularly alternative investment firms (61%), full-service institutions (58%), fintechs (56%), family offices (56%) and digital leaders (59%).

According to the survey, moving to the cloud will help investment providers support customer centricity, reduce operating costs, accelerate time to market, and facilitate agile innovation.

However, the report also points out that shifting to the cloud will take time.

Neesha Hathi, chief digital officer at Charles Schwab, tells Roubini ThoughtLab that “like other firms, we haven’t yet moved our legacy systems to the cloud. My guess is that it will be many years before firms will be all the way there.”

The report also finds that there is a business case for going digital.

Firms that are advanced in their digital transformation now spend 16.8% of their revenue on technology and plan to increase their investment to 24% by 2022, according to the report.

“While these investments are large, the payback can be even larger,” according to the report.

Over the last year, digitally advanced firms generated an 8.6% increase in revenue, an 11.3% jump in productivity, and a 6.3% improvement in market share from their additional technological initiatives. Further, advanced firms now derive 39% of their revenue through digital channels and expect that percentage to rise to 59% by 2022.

“There is also a clear correlation between investing in technology and generating higher revenue from digital channels,” the report states.

Fintechs, full-service institutions, private banks and asset management firms are making the biggest investments in technology and seeing the largest gains in revenue from digital channels, the report finds.

According to the report, fintechs on average receive 56.3% of their revenue through digital channels, full-service institutions receive 24% on average, and mutual funds and private banks receive around 22% each.

Over the next five years, investment providers expect their revenue from digital channels to rise dramatically — from 22% on average now to 38.1% by 2022, according to the report.

More than 70% of revenue will come from digital channels for fintechs, and more than 40% for full-service financial institutions and private banks. Asset management firms will be narrowly behind (39.6%). According to the report, these numbers show the “huge revenue increase” from digital channels from investing more in technology.

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