Cautious optimism persists despite regulatory pressures and cyber security risks
A steady influx of new competitors and investing alternatives are driving Canadian asset managers to invest in new innovative technology to improve the client experience, finds KPMG's 2018 Canadian asset management industry opportunities and risks report.
Key findings of the 2018 Canadian asset management industry opportunities and risks report
Top 3 organizational opportunities
Top 3 organizational risks
Top technology priority
"Evolving customer preferences and increased demand for digital services are transforming the asset management industry," says James Loewen, Partner and National Sector Lead for Asset Management, KPMG in Canada. "This is a massive wake-up call and asset managers in Canada are answering by turning to technology to modernize their operations and services, and ultimately upgrade their client experience in an increasingly competitive marketplace."
Spotlight on customer-focused technology
Two-thirds (65 per cent) of Canadian asset managers believe the best way to stave off new competitors is to build loyalty among their established client base by catering to their evolving needs and expectations, up from 52 per cent in 2017. An equal number (65 per cent) are confident technology will improve their customer experience, and four out of five (80 per cent) plan to invest in/or explore partnerships to integrate technology into their strategies, up considerably from one-in-five last year.
"There's certainly a focus inwards on enhancing the client experience and most are doing it through technology," says Peter Hayes, Partner and National Leader for Alternative Investments, KPMG in Canada. "There's a real push to give clients more transparent and flexible access, be it through new online channels, point-and-click services or automated functions. Companies see these as opportunities to keep their clients happy and stop them from switching."
The report notes that Canadian asset managers are more comfortable with disruption than they were one year ago. The fog around technologies such as blockchain, deep thinking and robotic process automation has begun to lift as they invest in the skills and resources to unlock new efficiencies. However reservations persist regarding return on investment in these technologies and how organizations will mitigate their potential risks.
"There has never been a time like today when the customer is really calling all the shots and directing how the industry transforms," adds Joseph Micallef, National Tax Leader for Financial Services at KPMG in Canada. "A lot of organizations have realized that if they don't understand these technologies and where they can be utilized in their respective business models, they're going to end up being behind the proverbial 8-ball."
Risks loom large
Considerable changes on the horizon for the Canadian asset management industry are, however, putting increased pressure on players in the space and adding to the stress of compliance. Survey participants this year listed the increasing complexity of the regulatory environment as the top risk facing their organizations, both now (58 per cent) and into the years ahead (52 per cent). For instance, domestic concerns such as the Best Interest Standard and discussions of Embedded Commissions loomed heavy, and so, too, did global regulatory shifts such as GDPR in Europe and an easing of regulation in asset management and related sectors in the United States.
"We're going to see regulations that place more of a burden on intermediaries in terms of better understanding their products and customers," says John Armstrong, National Industry Leader for Financial Services at KPMG in Canada. "That, in turn, is going to put more pressure on manufacturers to help advisors become smarter about all the funds they're offering, which may mean some of those products are going to be left out in the end."
Cyber security risks also continue to hang over Canadian asset managers in 2018, with 45 per cent of respondents listing this high on their risk radar. Indeed, large-scale cyber breaches can bring potentially game-ending reputational damage and loss of consumer confidence. This year, however, asset managers aren't standing idle, with 78 per cent planning to install systems to detect and prevent cyber incursions, and 55 per cent intending to purchase cyber insurance.
"The cyber threat is very much alive as asset management organizations have seen enough high profile breaches around the world," says Loewen, "There's this permeating sense that no one is safe and anyone with sensitive data is a target; which, in the asset management world, means sensitive client data."
Micallef adds: "Whether or not the risk is new or more prolific, it doesn't matter. If you can't protect client data you are going to lose the trust of your clients and, ultimately, their business."
Access a full copy of the 2018 Canadian asset management industry opportunities and risks report at home.kpmg.com/ca/en/home/insights/2018/09/kpmgs-asset-management-opportunities-risks-report.html.
About the 2018 Canadian asset management industry opportunities and risks report
Now in its third year, the cross-sectional survey asks Canadian asset managers to weigh in on the opportunities and risks they see for their organizations and the industry as a whole. The report also taps into KPMG's network of asset management partners and professionals to contextualize and better understand the results.
KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative ("KPMG International"). KPMG member firms around the world have 200,000 professionals, in 154 countries.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.
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