At recent events in Sydney and Melbourne, we discussed the changing investor landscape and how the managed funds sector can look to use data as a competitive advantage. We were joined by an impressive panel of industry leaders: David Fodor (Head of Business Development - Financial Services at AWS), Sarah Brennan (Advisory Board Chair at Investment Trends), Emily Chen (Global Head of Product, Technology Platform at Iress), Irene Guiamatsia (Head of Research at Investment Trends), Scott Willis (Global Head of Product - Investment Management & Administration at Iress) and Gordon Little (Head of Market Development at Iress). Here are the key takeaways.

A changing investor and advice landscape
We’re seeing a dynamic shift in the trend of new investors, with research showing that the proportion of young Australians (18-24 years old) entering the investment market is on the rise and it’s expected to continue growing. Investors are more engaged and actively seeking investment information, and the ‘face’ of that information is evolving, with data being presented and consumed in new and unconventional formats. Young investors consume information on platforms like YouTube and TikTok at a rapid pace, with an expectation to self-serve and view information quickly, via easy-to-use and intuitive channels. According to Investment Trends, we’ve also seen a huge influx of new online investors coming into the market over the last two to three years (which isn’t just the 18-24 age group), driven by the availability of new digital trading platforms that have opened up accessibility.

At the same time, we’ve seen a considerable change in the advice landscape, with less institutionally-aligned advisers in the market, advisers increasingly providing advice to high net worth and mass affluent clients, and a reduction in overall adviser numbers leading to a significant advice gap. According to Investment Trends, 2.6 million Australians will seek advice over the next 12 months, which means each adviser would need to have 800 clients to meet that need. But currently, the average number of clients advisers have is only 107.

What does that mean for us as an industry?
Against this context, there are two key implications for the managed funds industry in relation to data and technology:

  1. For many fund managers, engagement with retail investors is via the adviser channel. Any data or technology that can support advisers in being more efficient is key to enable them to service the clients they’ve got, and potentially increase their client base. This could include supporting advisers with data that helps them target the right types of clients, or enabling integration between advice software and third-party applications and providers.
  2. For the groups of consumers that can’t access advice but are looking to invest directly, we need to get better and more focused on how we can service them. This could include using data to segment different client bases, or providing relevant and targeted data to the different consumer groups who seek investment advice.

Driving better decisions through data
For the panel participants, the segmentation and usability of data were key to driving better business decisions. Data without insight is not useful, and a key challenge with the proliferation of data is finding relevant insight in it. How can we unlock data and use it for good? Fund managers should be thinking about segmenting investors and data related to those investors to effectively target those segments. There’s also an opportunity for fund managers to use data segmentation to improve front-end digital engagement to better attract and communicate with consumers. Digital apps like the Bendigo Up app is an example of a classic segmentation approach targeting younger investors by using data that’s specifically designed for that market.

From a data usability perspective, fund managers should be thinking about how to access the right types of information to make value-based decisions, which can be important for both compliance and marketing. This could be as simple as using trend data to better understand what’s happening in the business, identify risks and opportunities, and patterns in behaviour. Organisations are using data in areas such as trade surveillance, to monitor billions of trades per day with machine learning and better understand and regulate the markets they look after. From a commercial and marketing perspective, the example of Amazon’s “people like you also bought” approach demonstrates how organisations can leverage data they already know about consumers to create informed and hyper-personalised experiences that improve the customer experience.

Getting the foundations right
While concepts like machine learning were discussed by the panel participants, it was agreed that if we’re not focused and appreciating the importance of data security, none of these concepts are important. According to Investment Trends, while the awareness factor around data security is front of mind from an institutional perspective, it’s not necessarily something that independent financial advisers know how to deal with. When we consider the changing face of the industry, the issue of data security is quite significant, and there’s an opportunity to work with these adviser groups to support them to better understand data security and transition to more secure systems.

Top tips for fund managers in 2023

Think differently. 2023 will be a different environment for everyone in terms of data security, and the opportunity for the industry is how we can find ways to work within the regulation to produce a customer experience that is reasonably seamless.

You’re not alone. Knowing where to start when it comes to data can be a challenge. The good news is that this doesn’t need to be solved internally - there are a number of third party partners in the market who can support fund managers with initiatives such as statistics methodology and high performance computing solutions that can reap the benefits of data segmentation and usability.

Engage your partners. When used in the right way, data and technology can enable the managed funds industry to thrive. Iress has been working with participants from across the wealth management spectrum to support them with unique data analytics solutions, which can continuously and proactively scan for key risk indicators, provide real-time alerts and evidence to regulators. We’ve also been working with our global clients to support them with their obligations under the General Data Protection Regulation (GDPR). There are things that fund managers can do today to make sure the right processes and foundations are in place to create better informed decisions through data. Talk to your technology providers to ensure you know what that means.