Press article
Modern platform solutions support asset managers in regulatory matters
Published: 04.05.2023 | By investify
Efficiency gains through business process outsourcing
When the first fintechs were founded at the turn of the millennium, many market experts wondered whether they would quickly take market share from the established financial service providers. Twenty years later, things are clearer. Success usually lies in cooperation: innovative digital platforms support financial service providers with tried-and-tested solutions in a targeted and resource-saving manner in topics such as technology and regulation.
The example of asset management quickly shows that such wealth management and regulatory platforms can be an effective means of securing and expanding the long-term success of established asset managers, especially in the current environment.
Financial service providers are confronted with many issues on a daily basis, be it markets, products or often regulatory issues. Strategic developments often get short shrift in day-to-day business. The changes brought about by the iPhone, for example, have made their way into private life – the consequences for their own business model, on the other hand, were not sufficiently addressed for a long time due to a lack of capacities or opportunities.
This concerns both the grown customer needs in sales (frontend) and many processes (backend) that have not been automated for a long time. In general, there is still a tendency in the industry to do it yourself or to insource. Especially in the case of regulatory or technical innovations, such approaches reach their limits. The growing lack of personnel but also critical head monopolies fuel the problems. Efficient and at the same time compliance-compliant further development is hardly possible. In addition, many institutions still have to maintain a considerable number of staff in order to look after the systems and processes on a daily basis.
With a platform for asset management, solutions or functions are not only developed for a single B2B partner, but are made available to several similarly positioned companies. Platforms thus make targeted use of economies of scale. While some platform operators only act as technology providers, others offer solutions that also cover regulatory obligations – this is certainly the supreme discipline. Because this allows the regulatory burdens and thus also the (personnel) costs to be taken off the shoulders of the financial service providers and shifted to a tried and tested platform in compliance with the law.
Certain tasks of the asset manager are thus simply transferred within the framework of a business process outsourcing (BPO). This results in efficiency gains. The goal must be for the financial service provider to be able to focus fully on its core competencies and the relevant functions. As a rule, these are asset management, advisory services and sales.
Nowadays, applications are often offered in the so-called white label. The same applies to documents such as cost statements or quarterly reports. This means that the systems can be extensively customised and individualised – from the design to the customer portfolios to the functions and algorithms. While the platform basis always remains the same in the background, the end client does not even see that there is a collaboration with a technology and regulatory provider behind the scenes. The DNA and specifics of each asset manager remain completely intact. The same applies to the contractual relationship that the end client enters into directly with his personal asset manager.
Today, good platform providers no longer just provide digital sales solutions for sales on the internet. Rather, they support personal or hybrid asset management. The latter is seen as the ideal solution in many studies*. Processes can therefore take place both stationary and purely online, for example in risk profiling, legitimisation, signature or reporting. Especially with a very demanding clientele, digital competence and the associated convenience for the customer are becoming increasingly important.
The advantage of a platform solution is in particular that it meets the demands of pure online sales organisations as well as the requirements of established financial service providers such as banks, insurance companies or asset managers.
By using a platform, a variety of efficiency advantages can be created. First of all, they arise during implementation. This is because experience, software and processes already exist. The costs, but also the risk during setup, can be significantly minimised through platform structures.
At least as important is that the (usually overburdened) staff resources of the asset managers are spared. This also results in a significantly shorter implementation time – i.e. the efficiency lever of the solutions becomes visible very quickly and has an effect on the balance sheet.
Platform providers have also completely standardised and digitalised a large number of processes – also with regard to regulation. Furthermore, as described, there is the possibility of transferring regulatory obligations to the platform operator, provided it is a provider regulated by the financial supervisory authority. Examples are the monitoring of loss thresholds, reporting, the monitoring of investment guidelines, but also the complete settlement and collection of fees. This enables state-of-the-art and cost-saving value creation architectures. The company’s resources can thus be efficiently allocated to the core competencies.
Sustainability reporting offers a vivid example of the effectiveness of digital platforms. Sustainability is not only a big topic in asset management, it also poses major challenges for the players. From onboarding to matching client preferences with the asset manager’s sustainability concept to ongoing reporting to clients: the implementation of technical and regulatory requirements challenge asset managers. Namely, the client must be informed about the ESG approach, sustainability risks as well as impacts of the service in the pre-contractual information as well as in regular reports. This information is based on the asset manager’s own sustainability concept and follows defined rules. Basically, it can be said: the “greener” the asset manager’s sustainability concept, the more quantitative the quarterly report must be. For the reporting framework for adverse impacts (“PAI” for Principal Adverse Impact) alone, the legislator has provided for over 70 different disclosures. These must then be applied or broken down to the individual client portfolio, e.g. to show the ESG score.
Such work cannot be done manually or with poor system support; it requires the use of a digital platform. The asset manager provides custody account data and commissions a sustainability data provider, everything is then processed on the platform in a client-specific manner, the reports are prepared automatically in the look and feel of the asset manager and the individual reports are produced for each client.
Nothing is as constant as change. In this context, wealth management platforms also offer entrepreneurial advantages. Because a platform continuously evolves with the needs of the end clients and the requirements of the wealth managers.
In addition, the platform provider keeps an eye on the dynamics of the market and the global competition. Even in the case of legal innovations, such as Mifid or sustainability criteria, the specifications are implemented centrally and at an early stage. This in turn makes it easy for financial service providers. Further development costs are distributed among the relevant users of the platform or are even eliminated altogether.
Such platforms can either be operated completely autonomously or be deeply integrated into partner systems. An autonomously operating system has the advantage that no additional infrastructures or operating environments need to be provided. This gives small financials and non-financials, for example, the opportunity to offer innovative investment solutions – possibly in combination with a licensing package from the platform operator.
Alternatively, platforms can now be integrated very easily into partner or digital ecosystems via so-called APIs, i.e. interfaces. This option is particularly important for larger market participants. The networking aspect can also significantly increase the speed of implementation.
Conclusion: The example of wealth management platforms shows that the financial sector now has many possibilities and cost-effective options to sustainably improve its competitiveness and offer financial services in a modern way. Also, regulation no longer has to be a burden – it thus loses the often propagated horror.
* see e.g. Bain: “Time for Wealth Management Firms to Shift Course”.
The article was first published on 29/04/23 in the special supplement “Digitalisation” of the Börsen-Zeitung.
