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Product manufacturers, prepare to be disrupted


by Robin Christie | 10 Jul 2015
Digital disruption is already revolutionising wealth management product distribution, and it now has the product manufacturing sector in its sights.

This is one of the key insights to come from new research into digital disruption in the wealth management sector. According to the latest Asia Pacific wealth management report from Cerulli Associates, financial technology (fintech) firms are rapidly changing the financial services landscape in the distribution space – and product creation will be the next front line of battle.

But not all fintech firms are the same, states the report, which identifies the following three key types of player in this space:

Aggregators: These companies represent the bulk of disruptors at present, and provide a bird’s eye view of a wide range of products with greater transparency on pricing and services to investors.
Disintermediators: These fintech firms eliminate the need to go through traditional banking channels.
Innovators: These organisations harness front-end technology platforms to meet evolving client behaviour and needs.
Lessons from Asia

Looking at the Asian wealth management market, the report points to online fund supermarkets as prime example of aggregators. It singles out companies such as Fund Online Korea (FOK), and India’s MF Utility (MFU), both of which were launched within the last couple of years, as new entrants that were heavily championed by regulators and fund associations.

Moving to Hong Kong, the report singles out fintech start-ups such as Nutmeg, Wealthfront, and Eight Securities as disruptors that are taking the disintermediator route. These companies, it states, offer pre-packaged customised solutions to investors for a fraction of the fees of their more traditional competitors.

The innovators haven’t hit home in the Asian market as yet, said Cerulli Associates Associate Director, Shu Mei Chua, but he did point out that there are already social trading platforms “where investors mirror real trades of successful individual or professional traders”. Pointing to companies such as Covestor, eToro, and Ayondo, he said that the underlying concept here is simple: Investors from all over the world are linked to a single network, whereby each investor benefits from the collective wisdom of the crowd.

The rise of big data

Looking ahead, Chua predicted that the next wave of disruption will involve the integration of client data into the product manufacturing process. “The disruptors of the future will take on a very different nature by offering products and services before customers realize their need for them,” he explained.

How would this process work? Cerulli’s Asia research director, Yoon Ng, explained that big data analytics and consumer behaviour data could be harnessed to structure a product or service around the collective ‘unspoken’ needs of clients.

With the business community currently only being in the early stages of using big data, he said that its status has been raised by many to that of ‘the next big thing’. He added that it seems unavoidable that asset managers will also latch onto the power of big data – especially given the ubiquity of social media, for example.

“It may help them understand why mutual fund penetration is low in Asia compared to other financial products such as savings and deposits, and stocks, and come up with an action plan to bridge the gap,” he said.

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