Clients across Asia have typically been reluctant to embrace discretionary portfolio management (DPM) services, preferring instead to research, manage and instruct their own investment choices. There are clear signs however that Asian client preferences are beginning to shift. And this shift opens up a number of promising opportunities for financial institutions - it enables them to accelerate digital transformation efforts, and to create new revenue streams. All by building on existing DPM capabilities.
Given the complexity of modern economies, it is increasingly beyond the capabilities of an amateur investor to match the performance of investment professionals. Moreover, while Asian clients have historically been averse to paying for DPM services, growing numbers see the appeal in handing over responsibilities to free up time for other pursuits.
This evolution in client preferences aligns with the interests of private banks and asset management firms. Growing adoption of DPM services means that they can decrease their reliance on ad-hoc, transactional revenues - which ultimately improves resilience during a downturn.
Simultaneously, we are witnessing an enduring switch to digital-first services. Today’s customers demand a rich, immersive, intuitive digital experience from their financial services products - with all the convenience and depth of analysis that implies. Meeting these expectations with clever technology provides service providers with a range of other benefits.
Arguably, the term digital transformation is these days suffering from overuse but it still has some utility in the context of discretionary portfolio management systems. There are inefficiencies, waste and vulnerabilities in the way current DPM processes and infrastructure are set up. Even in an industry as highly digitised as financial services, there is still a high volume of manual processes and data transfer across the systems used by a typical DPM operation. This can involve manual calculation, submission and management of trading orders. Such inefficient order management can lead to excessive trading and high costs.
A lag in recording the processing, execution and settling of transactions means that the business never has a fully accurate and up-to-date view of operations. This in turn results in weak operational controls and a higher risk of compliance breaches.
Thankfully, modern technology can solve many of these issues. Currently, DPM services are restricted to high net-worth individuals, typically with portfolios worth USD 5 million or more. This floor reflects the constraints on the number of clients a DPM team can realistically serve. However, technology tailored for DPM teams supports them by automating trading, monitoring and rebalancing asset allocations at scale. The resulting increase in productivity enables investment experts to manage a larger volume of customers with portfolios well below the usual minimum threshold - meaning that service providers can target new customer segments.
DPM technology integrates with existing systems to provide straight-through processing, eliminate manual errors and provide huge gains in speed and accuracy. It improves the quality of information available to the business, portfolio managers and clients, while reducing the risk of compliance breaches. However, to make this work you need a team that understands the infrastructure, workflows and connections of wealth management systems, and that can provide the right architecture. It’s important that technology shoulders the complexity of the task and not portfolio managers or customers.
For financial services’ retail and mass affluent customers, DPM technology gives them access to high-value wealth management services, typically the reserve of a bank’s wealthiest customers. And it provides them with a digital experience more in keeping with modern tastes - with access to portfolio and performance information at any time, any place on any device and a suite of management and reporting tools.
This value proposition is not just theoretical. Quantifeed is already helping wealth managers - with a wide variety of layers and systems - to scale their DPM operations and offer these services to more customers. In just three months we were able to implement a solution tailored to the needs of a service provider which created new online channels, introduced efficiencies and controls, and improved customer service. Shortly after the launch, the business was managing millions of dollars of assets on behalf of customers they were previously unable to target.
Right now, the growing appetite for discretionary portfolio management services is one of the biggest trends we see across all markets in Asia. Singapore, the private banking hub of Asia, is leading the way with markets such as Japan and Thailand close behind. In Hong Kong, many investors come from China and are also more inclined to trust professionals to run their portfolios.
Change in the delivery of DPM services is coming. And the business case for technology-driven DPM is compelling: it lets a financial institution scale and expand its addressable market. Financial institutions across Asia would do well to get ahead of the coming wave of transformation.