May 11, 2021

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The term “digital cliff” has been around for a while and refers to the point at which a digital signal is no longer receivable. In 2018, Japan’s Ministry of Economy, Trade, and Industry (METI), published its DX Report, which sounded the alarm that Japanese companies may suffer significant economic losses after 2025 if they fail to leverage new digital technologies. For many firms, mission-critical systems are decades-old, with some approaching end-of-life.

Sound familiar? That’s because this predicament isn’t unique to Japanese firms. Cutter consultants work with global investment managers of all types and sizes and, while our clients may not ominously refer to it as a “cliff,” all are worried about future-proofing their technology and business. Some of our asset manager clients believe the next decade will bring major change and upheaval to the industry, with a few predicting that the number of asset managers will be reduced by half. Our asset owner clients struggle with similar technology issues, but many lack the advantage of being located in global financial centers, which makes it difficult to attract top technology talent. And, finally, our wealth management clients recognize the shifting demographics across the wealth landscape, but if they fail to properly leverage the technology at their disposal, they will quickly lose market share. None of us can predict the future, but we can all agree that competition is fierce, and all investment firms need to continually evolve to stay competitive.

Technology pushing large-scale disruption
As technology is helping drive transformation, more interaction and collaboration between technology and the business are necessary. We expect firms to structure their organizations with a Center of Excellence in place to connect the business with technical experts and promote innovation.
Angela Centeno, CPA, Cutter Research
Trends in Asset Management, January 2021

The good news is that many firms we work with are already addressing several of these issues. The cost-benefit of technology investments are clearer than they used to be, incentivizing firms to commit to those expenses. For example, the impact of data analytics on sales efforts and investment decisions has become evident, driving firms to invest more in this area.

Noteworthy are the impacts that investments in trending technologies such as machine learning, natural language processing, modern data storage, and data analytics have on the relationship between technology teams and the business. As technology helps drive transformation, more interaction and collaboration between these two groups (technology and the business) are required.

To future-proof their business, many firms need to ask themselves some tough questions. They’ll be required to realign their business so that it focuses on their core competencies, and ensuring that it’s well-aligned to support their vision for the future. And they’ll need to carefully select their technology and service providers. Digital transformation will not only improve your current capabilities, but will also enable your firm to change its operating model and develop completely new ways to operate your business.

In short, some firms will need to remove their blindfolds … or risk falling off the cliff.

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John Clark is the CEO of Cutter Associates and former head of Cutter’s Consulting division. He is a trusted client advisor for high-level planning and strategy, with over 30 years of investment management industry experience, and is regularly sought out to speak at industry conferences, and for commentary in industry periodicals.