The reality is that the pace of change in asset management is felt. Even though Robo-Advisor and Open AI's chat-type AI (artificial intelligence) ChatGPT have only recently appeared, various institutional changes are underway, with AI guidelines in the financial sector being designated and security regulations in the financial sector being advanced through expanded use of the cloud. Many areas of asset management are changing at a truly rapid pace. Let’s check out the ‘Changes in the Financial Market in 2024’ announced by the Korea Institute of Finance (KIF) in the second half of last year and take a look at things to consider in changing asset management strategies.
Competition is intensifying and population is decreasing.
The first issue is ‘intensifying competition’. Many banks are now devising improvement plans in various areas, such as strengthening soundness regulations, diversifying business, and activating overseas expansion. In addition, competition is intensifying as competition through digital channels goes beyond traditional competition.
The second issue is ‘interest rate competition’. With the introduction of infrastructure such as refinancing loan platforms and the expansion of online deposit product brokerage services, comparison of financial product conditions such as interest rates and fees is becoming easier. From the bank's perspective, it is necessary to strengthen platform partnership cooperation and prepare for the possibility of intensifying interest rate competition.
The third issue is ‘increased funding volatility’. This year, the interest rate gap between Korea and the United States remains the same, and the concentration of funds may increase due to restrictions on corporate bonds by rating. If there is instability in the financial system, such as the bank run (mass deposit withdrawal) that occurred last year at Silicon Valley Bank (SVB) and Signature Bank in the United States, fund outflow may occur at an unexpected speed. Accordingly, there is a growing need to examine strategies and related policies in preparation for rapid capital movements that may occur in the digital environment.
The last one is ‘demographic change’. What led the mid- to long-term loan growth of domestic banks were household loans and loans to small and medium-sized businesses and individual business owners (SOHO). However, as their demand for loans decreases due to demographic changes, there is a possibility that they will enter a new paradigm.
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There is opportunity in crisis
Of course, even in the changed financial environment, there are many opportunities. A representative example is ‘Em-bedded Finance’. Embedded finance refers to non-financial companies embedding fintech (a portmanteau of finance and technology) services into their own platforms using IT and digital technologies beyond the level of brokering or selling financial services. If financial services related to online commerce are developed and regulations on financial companies' business entrustment and entrustment are relaxed, or the financial services that can be provided through platforms are expanded, it can be an opportunity for banks. Because industrial capital can also advance into these embedded financial services, we believe there is a need to dominate distribution channels and develop financial services.
In addition, the financial market area occupied by cryptocurrency is also expanding. Therefore, banks must pursue management strategies such as strengthening digital competitiveness, preparing a foundation for sustainable growth, and strengthening risk management in line with the intensifying competition environment. In terms of strengthening digital competitiveness, domestic banks may seek digital innovation through partnership opportunities with non-financial companies. In fact, cooperation between financial and non-financial companies is expanding overseas. This is to understand the customer life cycle and strengthen asset management sales force. Domestic banks are also increasing consumer accessibility by expanding cooperation with Big Tech (large information technology companies) and non-financial companies. Going forward, our strategy is to explore customized financial services for customers, develop competitive financial products through digital channels, and expand partnerships with distribution channels.
In addition to developing products suitable for digital channels, it is also necessary to expand deposit brokerage and alternative lending and increase collaboration with distribution channels through the 'My Data Platform' to determine which products are suitable. MyData refers to a service that gathers together consumers' financial information scattered across various institutions and provides customized asset management solutions. Efforts must be made to dominate distribution channels and create competitive products suitable for digital channels.
It is also important to develop various niche markets. For example, they can suggest financial solutions related to the succession of a family business or arrange a merger. In relation to geopolitical risks, it is also possible to expand corporate financial services to domestic companies that adjust their overseas bases. There is also a need to explore ways to strengthen the digital competitiveness of the corporate finance sector. It would be a good idea to strengthen digital competitiveness in corporate finance in an open manner by looking at the cases of overseas financial institutions.
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Robo-advisor with increased usability
Wealth management includes a variety of financial products, investments, portfolio management, and financial planning. Customers use asset management services to receive quality services such as investment management, tax experts, legal, and real estate advice. Asset managers must suggest and explain financial products and services to customers in a consultative manner and enable customers to make their own decisions. Changes in customer expectations are also a consideration. The goal of a good asset manager is to understand the needs and expectations of clients. Recently, many customers do not purchase one-way services but study on their own. Ask the opinions of experts and colleagues and gather a variety of information. It also uses mobile apps as a key tool to access financial advice.
These changes in customers have also brought about changes in the nature and delivery method of financial advice. Robo-advisors are a representative example. Robo-advisor is an electronic service that provides algorithm-based automated asset management advice. It primarily provides portfolio management advice. It is a low-cost service that is well-received by the MZ generation (Millennials + Generation Z, born 1981-2010) because it can be accessed online and does not require a certain amount of assets.
Robo-advisors can analyze customer data with complex algorithms to create personalized asset allocation and financial plans. There are also robo-advisors that manage individual retirement plans. Of course, it should be applied to asset management with quantifiable risk. It is difficult to apply to unavoidable risks such as market crashes. Customers who need social security and tax guidance can also use a staff member or robo-advisor capable of financial planning. There are also automated robo-advisory services for investors looking to pay the lowest taxes. Fintech technology can universalize access to investment products and provide financial products and services at low costs. This means that you can track and rebalance your investment portfolio through a robo-advisor.
However, many customers still prefer human-tailored service. Human interaction is still needed to reassure customers and provide them with solutions during these uncertain times. The excellent asset management experience and capabilities of PBs (private bankers), which can be considered representative, still play an important role in asset management. Therefore, it is advisable for asset management companies to use robo-advisors and PBs together.
According to big data expert Song Gil-young's book 'Just Don't Do It', society is changing in three directions. First of all, it is differentiated. I live alone and am moving into smaller groups. The second is the reality of longevity. We live much longer and younger than in the past. Third is the spread of non-face-to-face. This reflects not only technology, but also people's reluctance to meet face-to-face. What the author's three keywords emphasize is the fact that he is ultimately alone. Amid numerous changes in the asset management market, where the proportion of digital and non-face-to-face services is increasing, we recognize the reality of living alone and think about the need to appropriately coordinate our own judgment with the help of PB.