NextGen Investors and the Asset Management Value Chain

Last month Ignites cited a study by Deloitte, FNZ and ThoughtLab Group – and sponsored by Amazon Web Services and Genesys – which found that members of Gen Y and Gen Z are “especially likely to switch financial services firms for better digital applications, platforms and tools.”


As Ignites noted, “Asset managers that don’t act quickly to respond to investors’ growing expectations around their digital experiences will lose out to competitors in the coming years,” and “the same holds true for companies that don’t successfully harness generative artificial intelligence [AI] to automate operations and bring down costs.”


The researchers surveyed senior executives at more than 250 wealth firms, as well as 2,000 investors globally, between October and November 2024. Of particular interest to the FundGuard team:


  • 74% of Gen Y/Z and 71% of Gen X investors said they want their providers to offer digital experiences on par with “leading born-digital companies. 
  • 60% of investors want their providers to supply them with better digital tools so that they can manage their investments directly.
  • More than 50% of the surveyed Gen Y and Gen Z investors said they might switch providers for better digital apps, channels, tools, and platforms, compared to 35% of the full group.


The research aligns well with the following 2024 Predictions commentary from FundGuard’s Peter Muldoon, which is particularly pertinent in the context of the Ignites research: 


“The increasing accessibility of tailored direct investing tools at major brokerage firms will have a significant impact for asset servicing firms and exponentially increase the technology requirements for their investment accounting platforms.” 


As the survey underscores, direct investors now have unprecedented access to information, enabling them to make more informed decisions and manage their portfolios with greater autonomy. Additionally, digital-first technologies are catalyzing innovation within the asset management industry, leading to the development of highly personalized services, (AI assisted) recommendations, and automated solutions for achieving true efficiency. 


For asset managers and their service providers aiming to attract the next generation of investors, enterprise-wide digitalization to enable alignment of front to back-office digitization is paramount. New generations of investors, particularly Gen Y and Gen Z, expect much more personalized and tech-forward experiences — something that cannot be achieved without the right foundation of modern technologies to build on.


Having entered the 100th year of the Mutual Fund Industry on March 21, 2024, the industry is actively examining how the evolution of collective investments has come to play out and what it means for the asset management ecosystem as the lines further blur between retail and institutional investment support – from asset managers and fund administrators to the technology that underlies their infrastructure. 


Digitization, Digitalization and the Tailored Direct Investing Experiences


When we talk about tailored direct investing tools, as cited in the survey, these are tools that enable investors at all levels to gain a more precise, granular understanding of their portfolio and its performance. 


With the rise of the digital generation and direct investing tools has come the need to digitize the end-user experience. To accomplish satisfying experiences, the front-end user interface (UI) for investors must match modern expectations for a streamlined and tailored experience, much like what they might find on platforms like Amazon, for example. 


Amazon, of course, is not an asset management or investment accounting platform (though they did sponsor the survey…) but it does represent the current day standard of a self-service tool that allows end-users to take a more active role in decision-making processes. Similarly, as investor UI technology becomes more advanced and powerful, considering how it impacts different types of investors is crucial. 


This can be especially critical for asset managers targeting investors who are moving away from traditional mutual funds to create their own tailored versions of funds. If the goal of the fund industry is to develop investment applications and technology platforms as robust and user-friendly as Amazon’s, they would likely incorporate key features that utilize machine learning algorithms to track and categorize portfolio cost, income, and market values. For example – similar to how Amazon offers real-time updates on inventory levels – an investment app could have the potential to provide real-time notifications on a portfolio’s unrealized gains and losses, as well as notify users with tailored alerts based on specific criteria, such as capital gain tax netting opportunities, conditional rebalancing suggestions, and advice for holdings substitutions to their portfolios.


However, tailoring asset management in this way requires an optimized back office that can provide investment accounting data on demand. A fully digitized front-end can have the most innovative bells and whistles, but that snazzy front-end is a proverbial house of cards if it’s sitting on legacy technology in the back-end. Today’s investment operations require complete cross-enterprise digitalization* with worfklows powered by an investment accounting engine that can play back and forth in a real-time, live environment across different investment applications.


The point is: A cohesive digital infrastructure is the starting point for achieving tailored experiences, whether an e-commerce like Amazon or in the more complex asset management space.


*It is important to distinguish between digitization, which focuses on converting and recording data, vs. digitalization, which is all about transforming processes and workflows to improve tedious, manual systems.


Evolving and Aligning the Asset Management Value Chain to Support the Direct Investor Experience

According to the Ignites summary, only a slim 15% of surveyed asset managers were considered industry leaders in the technology and process transformation category, with 55% of the surveyed asset managers labeled “laggards” regarding their technology and process transformations. Moreover, 55% of executives surveyed believe that digital-native firms will transform the entire industry. 


Examining this slow adoption of digital apps and platforms underscores the aforementioned need for traditional firms to catch up with digital transformation. Digital-first service providers can assist in establishing modern digital experiences for asset management firms to meet the expectations of the next generation of investors. 


This shift also presents an opportunity for emerging firms to align with the interests of younger investors, as highlighted by the research findings. As digitalization is crucial for businesses to adapt and cater to evolving investor preferences, smaller more agile firms may offer more tailored experiences to new generations of investors (which further emphasizes the importance of accurate data sourcing). 


Returning to Peter’s prediction, a transition in power towards direct investors encourages a more inclusive investment environment, prompting all players in asset management to adapt and innovate. Asset managers and their service providers will continue to play a crucial role in managing direct forms of investments – and digital-first providers will help better align investment decisions with the investors’ goals and values while offering transparency for safe and efficient investments. 


As asset management and investment accounting technologies continue to advance, the symbiotic relationship between direct investors and digital-first technologies will continue to evolve, offering both opportunities and challenges to players across the asset management landscape.


Those familiar with FundGuard’s philosophy will not be surprised to read that we believe the key to overcoming digital challenges in asset management all comes down to optimizing the back office with as much gusto as the front office. We believe that with a dynamic investment accounting engine delivering accurate, real-time investment accounting data from the back to the front, firms can embrace digitization to the fullest. 


FundGuard’s Cloud-Native Investment Accounting Platform and the Future of Investment Operations

The ability to manufacture investment accounting data that can feed the many different parts of a modern asset management workflow is vital — whether you’re a direct investor, an emerging asset service provider, or a large institutional asset manager. 


And as digital applications and platforms continue to take hold, FundGuard’s cloud-native investment accounting platform empowers all players in the asset management space to adapt quickly to changing investment preferences and technological requirements. 


Get started with FundGuard today to discover the power of cloud-native investment accounting.