Wealth managers can embrace responsible product innovation in three ways

The responsibility of asset managers is to define what they mean and to align their products with that definition. And they always have to invest in data, technology and people so that they always focus on improving their results instead of reducing costs and headcont.

These were important steps from the third installment of the European Series of Asset Management Innovation (AMI) Initiative Responsible Innovation Round Table.

In late June, virtually twenty-two senior industry practitioners gathered to consider how the property management industry could incorporate responsible innovation into product design.

In our previous workshop in March 2020, we discussed the challenges of current asset managers, bringing together responsible innovation in all aspects of their business, products from culture, when it is not already part of the organization’s DNA.

After all, changing the mission and culture of a firm is difficult and time consuming. So we’ve outlined three strategies to help integrate responsible innovation into business models. This means going beyond the structure of an incoming player through start-ups, spin-offs and asset manager alliances.

Since the products and their results are the final manifestation of the asset manager’s activities and brand, at the June workshop, we have followed three steps for asset managers to build responsible innovation in their products:

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1. Define liability and stick to it

Asset managers cannot avoid clearly stating what they mean by liability. The pressure of social and generational change demands them to spell it out.

As much as there is a possible definition of asset managers, the responsibility is subjective. While options such as the Sustainable Development Goals (SDGs) may provide a common denominator, asset managers must each choose their own definition and incorporate it into their mission and values ​​to ensure that it is consistent with their products throughout their life cycle. Has been integrated.

While this value adjustment can be challenging, especially for current asset managers, it is an important step in reviving and strengthening trust in the industry. The success or failure of a product should be clearly explained to the clients. It will not be easy in an industry that stigmatizes failure. But clarity about the intent and outcome of our actions is important for faith. Investors must have data to judge the performance / impact of a product and asset managers must build that transparency.

Ultimately, however, they assign responsibilities, asset managers must engage with retail clients. The biases and goals of non-professional investors differ from the goals of their professional partners. Professional investors, including asset managers, need to know why a product is intelligent and relevant to a retail investor.

Participants in the Asset Management Innovation (AMI) discussion

Alejandro Hiniesto, CFA Josina Kamarling
Amin Rajan | Maribeth Martorana, CFA
Shafiq Mary Massimiliano Saccon, CFA
David Wahee Matt Johnson
Elizabeth Vishnevskaya, CFA Matthew Beddoll
Fabrizio Palmuchi, CFA Neil Carter
Ferdinand smiled Rice Petheram, CFA
Gerhard Sogal Roberto Sylvestri
Gilum Peard, CFA Sergio Alvarez Telina
Jill Jackson Stathis Onasoglu
Thibaut Ganse, CFA Olivia Leblu, CFA

2. Invest in data and technology

Once responsibilities are defined, asset managers should apply as much data and technology as possible to create better results for clients and other stakeholders according to their own definition of responsibility.

Some areas have more data available than others, but asset managers must be proactive. For example, one of the objectives of the EU’s environmental action plan is to clarify what is and what is not “green” and to provide complete clarity on the underlying investment and to measure which is green and which is brown. The responsibility of an asset manager may be to work to make those aspirations a reality for their clients. Also, although some believe that regulators can hinder innovation, responsibility can mean staying connected to them.

In other cases, both data and technology are available and can be applied more widely to “enhance” the investment process. The application of artificial intelligence (AI) and machine learning in investment management is still somewhat marginal. But it will become essential. So there is still time to move beyond the curve of asset managers.

An important caveat: AI and machine learning are certainly explanatory. They can’t be black boxes. We need to be confident that what we do is repetitive before it goes into production. And we need to be able to make it understandable to our clients. No one believes in a benchmark that is inevitable or a code or product that is irresistible.

Ultimately, despite the stigma, failure must be allowed. Responsible innovation requires a “failing well” environment where failure is an opportunity for insight, analysis and growth rather than blaming and reconsidering.

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Head. Focus on creating better results without cutting headcont or costs

Costs and headcount are reduced for the challenges facing asset management companies. They are classic short-term: such measures will improve P / L for the next reporting season, but only at the expense of the firm’s long-term performance.

Asset managers need to think outside the next quarter and, for example, apply AI and machine learning strategies to improve outcomes and their competitive position in the market for all stakeholders. The enhanced analyst who has effectively combined their innate human intelligence with AI will make companies more competitive and more likely to survive. And that means adopting a free-to-fail environment where staff retraining and constant fine tuning is the order of the day.

Finally, to advance innovation in the asset management industry, we need more “translators”, people with hybrid backgrounds and skills in multiple disciplines – for example asset management and AI. Professionals with these so-called T-shaped skills will be essential to help C-Suite and the senior management team understand and validate responsible innovative products.

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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed must not reflect the views of the CFA Institute or the author’s employer.

Photo Credit: ©GettyPhoto / Barney_Photo

Fabrizio Palmuchi, CFA

Fabrizio Palmucci, CFA, a senior adviser to the Climate Bonds Initiative, founder of Impactivize, a consulting boutique and a contributing author to “SustainFinance.” With a number of firms, from boutiques to tier-one asset managers and rating agencies, the Climate Bond Initiative works with palm issuers, key banks and investors to reduce market friction and improve risk differentiation.

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