(This article first appeared in the Q4 issue of GlobalTrading.)
With Fabian Gomez, Chief Operating Officer, Westwood Holdings Group
Define digital transformation, in terms of what it means for an institutional asset manager.
This is very difficult to do as it can mean different things for different firms. In our case, it means retiring legacy three-tier architecture platforms in favor of cloud-based solutions with digital front ends that have a lower total cost of ownership (TCO). It also means to put a bigger emphasis on digital engagement with our institutional clients. In the former, we replaced our legacy portfolio accounting system platform with a digital solution that will allow us to avoid the costly and disruptive upgrade cycle as the platform can be upgraded almost at will without disruption, since it is digital. In the latter case, we have deployed a digital solution for our institutional clients that is user-friendly and allows them to have a self-service portal for information.
What are the specific areas within asset management that digital transformation is most, well, transformative for?
The obvious place is the web. For wealth, a modern, up-to-date digital platform for client engagement is table stakes. In the institutional space, while not table stakes yet, it is getting there for the consultant community. A digital platform for client engagement in the institutional space is becoming more and more important. Consultants are asking for easier access to information and digital is becoming the media of choice. The other areas of focus are traditional software platforms and legacy systems. Migrating to a digital model can significantly reduce TCO, as well as provide quicker delivery of functionality without the big project upgrades that are common in our industry.
How far along is the asset management industry in its digital transformation?
In the institutional space, it is still early days. Everyone has an up-to-date web presence, but a site that really focuses on engagement with consultants is still very new. Part of the problem is the consultant community does not demand the same kind of engagement that a wealth client demands. That said, they do want ease of use and easy access to information. The more the institutional asset managers can engage with these clients in a positive fashion, the easier it will be to keep their client happy.
What are the catalysts for digital transformation?
Ease of access to information is the main driver. Clients don’t want to call and ask for spreadsheets of data to be exchanged by email anymore. Being able to see your data quickly and easily is important. Being proactive and providing tools for clients to access their information how they want and when they want to will lead to positive experiences and help keep clients. Digital engagement with clients will continue to be important.
What are the roadblocks to digital transformation?
The roadblocks really are the ones we create ourselves. The technology is out there from many different vendors to start the road to digital transformation. Spending the time to develop a digital strategy and roadmap takes time and must be an effort where there is buy-in from the top. As with most major transformations, if you do not have executive leadership and buy-in, it will be doomed to failure. These efforts take time and commitment and not just money, but that is important too.
How can digital transformation be a competitive advantage for an asset manager?
From a pure TCO perspective, digital platforms have a significant advantage over traditional, three-tier, on-premise architectures, if done right. From a client engagement perspective, you can impress your digital brand upon your clients by providing an empathetic experience for them every time they visit you digitally via PC or mobile device. Your digital footprint should provide your clients information how they want it and when they want it. When your clients visit you digitally, if they instinctively know it is you, then you have successfully created a brand and empathetic experience that will give you an advantage over competitors.
What are the risks for an asset manager who falls behind on digital transformation?
I call this the competitive disadvantage paradigm. While a strong, empathetic digital presence is not table stakes today, we are moving in that direction quickly for institutional asset management. If you are not looking at your legacy internal platforms that need major upgrades and thinking there has to be a better way to operate, then you will be at a competitive disadvantage. We say “go digital or die,” but it is meant more as changing the way we think about our business. Leveraging digital platforms in a cloud to operate your business is not only the future, it is the here and now.
How does digital transformation filter down to the end clients of an asset manager? What do they see that’s different/better?
For the client, it is having access to timely information when you need it. It is a well-organized document vault with account statements, performance reports and legal documents. It is advanced tools to slice and dice reports how the client wants to see it and being able to print and export these reports in whatever format the client wants when the client needs them. It is getting timely content (written, audio or video) in a social feed like LinkedIn that takes you back to our site or digital app for your consumption. It is being able to directly communicate with your relationship manager from these digital platforms by leaving a message (text, audio or video) that is then forwarded immediately to that relationship manager. We will never replace the face-to-face engagements to develop relationships with our clients, but the digital medium will help strengthen those relationships.
What has Westwood done / What is Westwood doing in its own digital transformation?
We have been working on our digital transformation since 2018. We began by replacing our antiquated middle office platform with a completely digital solution from InvestCloud. It is a completely digital and modular platform that allows you to build what you need, app by app. We worked with InvestCloud to build dozens of apps to meet our business needs as we deployed this solution over 18 months to be our Portfolio Accounting, Reconciliation, Performance Measurement, Composite Management and Client Reporting/Portal Solution. We are currently nearing the end of a major effort to deploy a sophisticated client portal for our wealth business that will have tools for our clients who want to be more self-serve (mass affluent) to our more sophisticated and complex (UHNW) clients.
Is there an endpoint to digital transformation, i.e. will there be a time when an asset manager is fully digitally transformed, or is digital transformation more of a continual, ongoing process?
There is never an endpoint to technology. I suspect we will continue to push the envelope with digital for the next five to 10 years. As clients’ preferences evolve in how they want to engage with us, the technology will need to evolve. Today and tomorrow it is digital. As new technology breakthroughs evolve, client engagement models will change, and we will need to grow with it. What that will be is anyone’s guess, but I will leave that to the futurists.
