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Thursday, December 14, 2017

Nevermind Passive. Are Tech Giants Coming For Your Biz?

News summary by MFWire's editors

Even as the continued rise of passive management threatens the vast majority of asset managers, fundsters worry about a potentially bigger threat: tech titans.

Bloomberg renews the longtime fear, going back at least seven years, that technology giants like Alphabet, Amazon, Apple, Facebook, and Microsoft might try to build or buy their way into asset management or wealth management. Indeed, electronic payments specialist Paypal is already helping a roboadvisor scale up its distribution, and two years ago there were rumors that messaging specialist Snapchat would build its own roboadvisor.

Bill Doyle
Fidelity Labs
Head of Research
"We're working to innovate so we don't get caught flat-footed," Bill Doyle head of research at Fidelity Labs (part of Fidelity Investments), tells Bloomberg.

The bad news for fundsters is that many tech giants have powerful retail brands and direct connections with consumers that they could use for distribution, advantages that very few asset managers have. And while the investment world hasn't quite regained much of the public's trust since 2008, many people (especially millennials) trust tech companies. The Bloomberg piece cites Capgemini SE research that more than 50 percent of investors with at least $1 million in assets would turn to a big tech company to manage that wealth, as well as Viacom research that three-quarters of millennials would prefer money management from tech giants over services offered by their own banks.

On the flip side, there continue to be good reasons why tech giants haven't taken asset management just yet. The big one, in the U.S. at least, is that financial services may be the most heavily regulated business sector (ok, defense is probably tougher), a significant barrier to entry to any players outside the industry.

There are other lines of defense, too. The importance of human financial advisors in working with investors is critical, and one might expect those advisors to be less eager than their clients to jump on a tech giant's asset management gamble. And that combines with another issue, scale: as more and more dollars flow to passive products, and fees continue to compress across the board, asset management does not offer the same enticing margins that it once did, especially for any firm looking to be a giant player with its own infrastructure.

On the flip side, if any tech titans do get interested in the asset management or wealth management businesses, that may provide opportunity, too. After all, those branding and distribution advantages could be melded with an established or rising player's own industry expertise, scale, and familiarity with regulations. Perhaps it's time for fundsters and their allies to consider forging alliances with the folks in Silicon Valley ... 

Edited by: Neil Anderson, Managing Editor

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