Asset managers must clearly define responsibility and ensure that their products align with this definition. Additionally, they need to invest in data, technology, and people to prioritize improving outcomes over cutting costs and reducing headcount.
Key Points
- Asset managers need to define responsibility and integrate it into their products and mission.
- Investing in data and technology is essential for creating better outcomes in line with responsibility.
- Asset managers should focus on improving outcomes rather than reducing costs and headcount.
The roundtable discussions in a European series of Asset Management Innovation (AMI) Initiative emphasized the importance of incorporating responsible innovation into product design. The discussions surfaced three strategies to help integrate responsible innovation into the business model, including going beyond the incumbent player’s structure through the start-up, spin-off, and asset managers alliance.
In the previous workshop, challenges faced by incumbent asset managers in integrating responsible innovation were discussed. Changing a firm’s mission and culture is a difficult and time-consuming process, so the focus was on strategies to incorporate responsible innovation.
1. Define Responsibility and Stick to It
Asset managers are urged to explicitly state their definition of responsibility as they can no longer avoid it. The pressure from social and generational changes necessitates clear articulation of responsibility. While alternative frameworks like the Sustainable Development Goals (SDGs) could provide a common ground, asset managers must choose their own definition and embed it in their mission and values. This step is crucial to revive and strengthen trust in the industry and achieve transparency in product performance.
It is also important for asset managers to engage with retail clients and understand their distinct biases and goals. Clearly explaining the success or failure of a product to clients and cultivating transparency is vital for building trust.
2. Invest in Data and Technology
Once responsibility is defined, asset managers should leverage data and technology to improve outcomes for clients and stakeholders. Proactive use of available data and technology can enhance the investment process and contribute to transparency and innovation.
Applying artificial intelligence (AI) and machine learning in investment management is essential for staying ahead of the curve. However, it is crucial that these technologies are explainable and that failure is permissible in order to foster a culture of responsible innovation.
3. Focus on Creating Better Outcomes Not Cutting Headcount or Costs
Asset managers are encouraged to think beyond short-term measures such as reducing costs and headcount. Embracing AI and machine learning techniques can lead to improved outcomes and competitive positioning in the marketplace. Additionally, fostering a free-to-fail environment and investing in staff retraining are essential for sustainable innovation.
Furthermore, the industry needs professionals with hybrid backgrounds and expertise in multiple disciplines to effectively drive responsibly innovative products and gain validation from C-suite and senior management teams.
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