By Anthony James, Leader, Asset & Wealth Management, PwC
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Australia’s asset and wealth management industry is deeply connected to society. The work done each day influences the nation’s wealth, which affects everyone – from our children right up to our ageing population; not to mention the government that underwrites the healthcare and pensions of Australians.
That’s quite a responsibility upon the industry’s shoulders.
To succeed, financial services must adapt to rebuild trust with regulators, government, investors, and the community. The Financial Services Royal Commission has placed the industry under the spotlight like never before. Everyone must take this chance to show what the industry stands for; demonstrating its contribution to society and showing that it’s populated by people who care.
That was clearly evident when we hosted senior industry figures at PwC’s Sydney office recently. Together we discussed the remarkable opportunities and risks we face now and in the years ahead (as highlighted in a recent PwC report Asset & Wealth Management Revolution: Embracing Exponential Change).
During our panel discussion, Sam Hallinan (CEO of Nikko Asset Management) forecast that artificial intelligence will dramatically change front office activity – but that it won’t happen overnight. “We’ll see more of a change in data analysis work and no change as it relates to the human aspect of choosing securities,” said Hallinan. “We’re human. We’re emotional beings. The way in which we process information and respond to it is driven by deep psychological layers that AI will struggle to understand.
“Ten years from now, there will be less need for traditional data analysts and you won’t be able to rely on selling data interpretation or being a passive provider,” said Hallinan, pointing out that Nikko has positioned itself in the market as active asset managers offering concentrated, high-judgement portfolios.
That raises a question that I think all asset management businesses should be asking themselves now: How will our back office and middle office continue to add value, and therefore generate revenue, in the years ahead?
Vive la evolution
Of course, technology is just one of the forces reshaping the asset and wealth management industry as we know it. At our Sydney event we also discussed the transition towards a buyers’ market as a result of increased regulation and competition. We talked about how investors will increasingly demand a choice of active, passive and alternative strategies for multi-asset, outcome-driven solutions. And we discussed new draft legislation affecting the design and distribution of financial products to retail clients.
In this era of change and disruption, the wealth and asset management industry must evolve. That’s not always easy to do, as panellist Pauline Blight-Johnston (Group Strategy Director from Challenger) pointed out: “Innovation has been stifled in the accumulation sector and we've got be careful that doesn’t happen in the decumulation sector,” she said.
Flexibility is vital during decumulation, explained Blight-Johnston, because individuals’ needs diverge in terms of desired lifestyle and health: “Government says it wants to encourage more innovation but there is a risk that they inadvertently create roadblocks to innovation by grounding legislative change in today’s product structures. It is our responsibility as industry leaders to help shape regulation that facilitates innovation by thinking broadly about the future financial and non-financial needs of retirees.” Asset managers will need the freedom to innovate and tailor products to client needs, argued Bright-Johnston.
Ready for action
The quality of the conversations and ideas at the Sydney event left me optimistic. It’s true that our industry faces incredible change – we have much to do – but I see a group of passionate and dedicated professionals prepared to rise to the challenge.
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