Uberisation is the least visible of the five thematic types of innovation we’ve been tracking in the financial services sector. It is most obvious on the wealth advisory side of the business, where independent RIAs and IBDs peeled away from wirehouses and regional brokerage firms and flourished as a constellation of technology vendors and service providers emerged to meet their needs. This development was spurred on largely in part by investor dissatisfaction with proprietary investment products and the resulting trend toward open architecture.
Despite some use of contractors in areas like marketing, sales, compliance, and strategy, asset management firms have largely chosen to have most core functions handled either internally or by trusted, enterprise-scale service providers. There has been no compelling impetus—and it would not have been practical in any case—before recent technical innovations and the universally shared experience of working with distributed workforces. Even today, there may be too much operational and reputational risk, as well as oversight difficulty, for a wholesale disruption by gig workers.
Nevertheless, the atomisation of work is already visible even in this relatively calcified industry. It is often indirect, with growing numbers of service providers expanding their own networks by engaging with even more contractors. We expect to see more of this not only in distribution and middle office functions, but also investments. Asset management firms are quick to highlight investment acumen as their core competency—typically the main reason for their founding—and some are willing to rely on others to do virtually everything else. This model may be tested as highquality technology tools proliferate, data and analytics become more widely available, and transaction costs approach zero, empowering more outsourcing of the security selection and asset allocation functions.
It is worth remembering that disruptors can themselves be disrupted. Uber has a US$100+ billion valuation to go along with its dominant market position and global name recognition, but even it is vulnerable to autonomous ride hailing, which could deeply undercut the cost of its existing business with large, efficient fleets that could be in service 24/7 with minimal oversight. Uber famously hedged its bets by investing heavily in self-driving vehicles, but myriad challenges caused it to step away from these efforts in late 2020.19 The technical challenges and potential for physical harm mean autonomous vehicles may not be ready for prime time yet, but autonomous ride hailing seems all but assured at some point and there is no guarantee that Uber will be the primary beneficiary.
Despite the success of indexing and robos across investor segments, the management of portfolios is a long way from being fully automated. Active managers face challenges, but they continue to explore ways to generate alpha and attract new assets. Accustomed to looking at long-term implications, they will do everything they can to avoid death by a thousand pinpricks. This doesn’t mean that there is nothing to be learned from this next phase of innovation, which is likely to roil the asset and wealth management sectors.
When it comes to transportation, customer experiences will eventually become more important than products per se. This is no longer a novel concept in financial services, but designing a superior and even personalised customer experience will require adapting further to a fast-moving environment where investors are catered to by a growing network of partners giving them what they want, how they want it, and when they want it.
Customer experience has not been discussed with any regularity in the boardrooms of asset management firms until the past decade. Even so, it rarely sparks any serious consideration of how things appear from the client’s vantage point, whose expectations have been raised by their interactions with Amazon and other customer-centric organisations. Investors appreciate options, but they want their choices curated. Rapid turnaround is a given. Transparency and real-time analytics are expected. Trust is critical and needs to be validated with independent reviews and endorsements. Advice needs to be customised and holistic. Above all, people are coming to expect communities where they can transact knowledgeably and effortlessly.
Not every firm needs to do everything. In fact, the emerging network model encourages specialisation. The atomisation of workforces may represent the ultimate expression of the division of labor first described by Adam Smith more than 240 years ago. Unlike workers toiling in the pin factory of Wealth of Nations, however, today’s knowledge workers compete amid the greater transparency and higher expectations that come with pervasive interconnectedness. Specialised knowledge and skills offer some measure of protection, but success in even relatively complex businesses like asset management will require an acknowledgement that the economics of a networked industry are likely to look very different, even as standards continue to rise.
As inhospitable as this future may look to some, it will attract others with more positive attitudes toward innovation and change. Able to add demonstrable value to their clients and counterparts, many small firms and individuals will triumph. Larger organisations may find that some of their traditional strengths begin to fade, forcing them to divest control of certain activities or otherwise adapt to the new, networked reality. Big or small, anyone who can orchestrate the cost-effective delivery of an exceptional client experience to the next generation of investors should find themselves in pole position within a reimagined asset management industry.Download Uberisation 2.0 PDF
19 Cade Metz and Kate Conger, “Uber, after years of trying, is handing off its self-driving car project,” New York Times, December 7, 2020.
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