Digital-First Approach Key for Buy-Side Response to Increasing Pace of Change

Asset management firms need to embrace technology-oriented strategies and investments to better prepare for a changing environment. It’s a common enough discussion and acknowledged viewpoint, but how do firms that have been historically reticent to embrace new and emerging technology go about achieving it?

During his keynote address at this year’s Buy-Side Technology European Summit in London, Stuart Warner, head of technology at Fidelity International, said attitudes are beginning to change when it comes to digital-first strategies among asset managers, partly as a result of companies like Microsoft, Amazon and Apple that have managed to realign their business models to disrupt and succeed in their respective markets.

“Buy-side organizations are waking up to the fact that technology isn’t a cost to control. It’s not an overhead; it’s a competitive advantage,” said Warner. “Investment banks woke up to this a long time ago, investing huge amounts in trading, automation of liquidity, foreign exchange (FX) global markets, and used technology to their advantage. That is changing now and people on the buy side are starting to compete in this marketplace.”

Pointing to Charles Darwin’s theory of evolution—that it is those most adaptable to changes in their environment that are best equipped to survive—Warner asserted that technology is the key driving force for both reacting to and enabling positive change on the buy side, using his own firm’s ongoing project as a basis.

Digital First

Fidelity International, a UK-based asset manager that operates in 27 countries, has adopted technology as one of its key business pillars, and is in the process of implementing a digital-first strategy that Warner categorized as “quite radical,” following years of expensive technology optimization projects through an infrastructure-as-a-service platform.

However, digital is a term that is often misunderstood or interpreted differently, with many believing it to relate to simply the front-end. “It is not about just having a nice, clean front end and good customer interaction; it is about having a straight-through process that runs right the way through,” Warner said. “If you can achieve that, you can get a very scalable business, keeping your fixed costs under control and then grow the company quickly.”

Fidelity International’s Simplify Technology strategy focuses on five core areas, said Warner: application architecture, where a rationalization project will eliminate overlaps and aims to reduce the organization’s application estate by 30 percent over the next two years; data simplification through compression, visualization and virtualization to ensure data is in the right place and reduce transfers throughout the organization; cloud architecture, through the implementation of a platform-as-a-service cloud capability that already hosts over 100 applications; leveraging DevOps for increased automation in the middle office; and the optimization of the firm’s support structure, through the adoption of a test-driven and business-driven development approaches.

Improve Efficiency, Reduce Cost

The result of all this work is to streamline and refocus Fidelity International as a more agile business entity, increasing responsiveness to change while also reducing the organization’s fixed costs, resulting in a more scalable business model centered on new technology.

“You can grow profit without growing revenue if you do have a very clear digital strategy and focus on the efficiencies of the business,” said Warner. “That is where the secret sauce is and something that Fidelity has looked at quite closely, particularly within technology. As we battle between investing in change, it is keeping our ongoing fixed costs under control, and there is always a conflict between the two. With new technologies we are trying to make sure we get the right investments without growing fixed costs, which is a much more scalable model.”

The goal of placing technology at the heart of any financial services firm is to be adaptable in the face of whatever may come down the line in the future. Like other asset managers, Fidelity International is looking forward, and Warner highlighted artificial intelligence (AI) as a key technology for the future.

“AI will probably be the technology that will matter the most to Fidelity over the next 10 years,” said Warner. “It’s got huge potential and is a multi-billion-dollar opportunity, but it is also an existential threat. Through the use of AI there is no doubt we can offer more personalized services to our clients and even tailored products in a way that we could never have done previously.”

An in-depth interview with Fidelity International CTO & COO Ian Thompson was published in the April issue of Waters.