Just days away from The Summit 2019, the FSC has gained an insight into what PwC, Tax Partner, Ken Woo thinks about funds management innovation.
By Ben McAlary
PwC Tax Partner, Ken Woo, is looking forward to exploring the topic of funds management innovation in the Australian market with his fellow Summit panel members, Jamie Wickham (Morningstar), Marian Azer (RBC Investor & Treasury Services), Chris Fichardt, (CFSGAM) and moderator Brett Jollie (Aberdeen Standard Investments) on Wednesday 28 August. Read on for more from Ken.
How much influence do you think innovation has had in the local funds management space to date?
I would argue that it is not necessarily innovation that has influenced the funds management space, but some very interesting challenges requiring the industry as a whole to do things differently, whether with products, services or changes to the way we do business.
A good example is in the SMSF space, which I think represents an unrealised opportunity when it comes to innovation, particularly in Robo advice. One of the challenges for fund managers is getting access to retail investors, and with Robo advice (and similar forms of AI technology) they can achieve greater proximity to SMSF members, in turn putting the customer first by providing greater access to tailored, fit-for-service advice.
Australia is a sophisticated market and there is a lot that we can do to innovate. However, to date the challenge has been that some of our regulations, particularly tax laws, are very complex. As such localising innovative products and services from the global stage to the Australian market is not as easy as other countries.
With that in mind, who is the world leader in funds management innovation and what can we learn from them?
It is hard not to look at the US as the prime mover when it comes to innovation in the industry, with two instances that really come to mind as having significant influence in global capital markets.
Firstly, indexing (originally championed by Vanguard and adopted by State Street and BlackRock) required companies that adopted it to position their brand as technology providers as much as fund managers, which was at odds with the approach from the rest of the industry.
Secondly, being first to market, which certainly helped Vanguard in the index space, but also State Street and BlackRock, which now enjoy being market leaders in the ETF market, in part thanks to the first to market advantage.
These companies have been able to achieve this because they have been both agile and bold in their business practices. Case in point, I asked the Global CEO of Barclays Global Investors Patti Dunn ‘Is there a plan B’ at the iShares launch back in the year 2000 of which she replied ‘No, there is no Plan B’.
I strongly believe it is this level of boldness that inspires the innovation mindset.
Has the funds management industry been immune from the Royal Commission? What are the key take outs for the fund management industry?
The Royal Commission may have a significant impact on the funds management industry, with many interests at play. I believe the emphasis the recommendations have had regarding best interests for investors are positive and need to be the focus as attention turns to legislation at the back end of this year and into the next.
From a perception perspective the industry is facing a series of seemingly unsolvable problems such as ‘Can we save if we spend?’ ‘Can we reduce price and offer more?’ ‘Can we improve compliance by doing less checking?’ or even ‘Can we build trust and make a profit?’
The answers lie in innovation and a reframing of the mindset of industry participants, which I believe may come from new entrants.
What are you most looking forward to during your panel discussion with Brett Jollie, Jamie Wickham, Marian Azer and Chris Fichardt at The Summit?
It is going to be a privilege to be among very experienced leaders who are facing these impending triggers for disruption. I am looking forward to challenging fellow panellists about what they are going to do about innovation disruption and how they think the industry is going to respond to it.
To give a bold example of what’s possible, a retirement income innovator is proposing that once profits in his company reach a certain threshold, a surplus would be allocated to a guarantee pool to help investors meet their outcomes. The purpose of this strategy is to align and build trust with investors, which in turn provides a competitive advantage for that company.
This is the kind of growth thinking and innovative mindset that I hope we will be discussing during the panel session.
If there is one thing you would like delegates to walk away from your panel discussion with, what would it be?
I believe that innovation, whether it’s disruptive or not, is quite possibly going to come from new entrants rather than existing participants.
The challenge for existing participants is to avoid the ‘innovator’s dilemma’ – that is the inability to take a step backwards to move forward.
If you look at unregulated markets around the world that is where you can see radical innovation, as there is more room to move. The greatest challenge for our industry is how we can learn lessons and adapt practices from these unregulated markets, for the benefit of our industry as a whole, along with the customers we serve, in the immediate future and beyond.