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Asset managers' expectations for better service delivery leveraging technological advancement at optimized cost of service are compelling asset servicers to fast-track their digital transformation investments.
Asset servicing firms have long been integral to the investment fund landscape in Luxembourg. The advent of digitalization presents a significant opportunity for growth within this sector. Amidst intense competition and heightened cost management expectations, the industry is experiencing both consolidation and a reassessment of operational models to enhance service delivery. Digitalization stands at the forefront of this transformation, offering the potential for reduced operational costs. However, many organizations have yet to achieve the level of digital sophistication necessary to gain a competitive edge in cost efficiency and service quality.
The "Impact of Digital Technologies on Asset Servicers – Luxembourg Industry Benchmark 2024" report, now in its second edition, reflects insights gathered from December 2023 to February 2024, with contributions from 24 Luxembourg-based asset servicers, including C-suite executives. The report reveals findings that could significantly influence the decisions of asset managers, who are increasingly prioritizing value alignment with operational models over cost when selecting service providers. What follows is a reflection on the results of the survey, pulling insights most relevant to asset management.
This year, the Luxembourg asset servicing industry has seen a substantial increase in digital maturity, moving from "Basic" to "Advanced". Firms were benchmarked across three major categories: strategy and organization, customer centricity and operations, and technology and innovation.
Confidence in customer centricity is high, and prioritized digital investment is set to positively impact client experience
The high confidence levels among asset servicers in their client-centric approach and the substantial investment in digital projects suggest benefits for asset managers. With 78% of servicers assured of a positive customer perception and 61% rating their customer experience as “intermediate” and actively enhancing client experiences through digital tools, asset managers can anticipate more responsive, efficient, and tailored services. This focus on client satisfaction, backed by financial commitment to digital innovation – over half of asset servicers have secured full funding for digital projects, with 57% dedicating up to 5% of revenue towards initiatives – positions asset managers to benefit from streamlined operations, improved data accessibility, and ultimately, a competitive edge in the market.
AI an important emerging technology, but data platforms still expected to shape organization the most over the next two to five years
Asset servicers overwhelmingly (91%) believe in their ability to adapt to AI. The strong confidence signals a transformative period ahead for asset managers. However, data platform modernization is still anticipated to be the most influential technology in the next two to five years, given its role in updating outdated systems and supporting new asset manager demands. Alongside AI, workflow automation is also seen as a key driver of transformation. These emerging technologies are primarily being applied in operational support, customer service, knowledge management, and compliance.
Over two-thirds of asset servicers prioritize their digitalization initiatives based on customer needs and preferences
The fact that a majority of firms (68%) are already providing digital products and services, with an additional 12% planning to do so, indicates a trend towards a more digital-friendly asset management industry. When deciding where to focus digitalization projects, 87% of firms prioritize based on business impact and alignment with strategic objectives of the organization, 70% based on customer needs and preferences, and 70% based on budgetary constraints. This appreciation of strategic objectives and customer preferences suggest that asset managers will receive more tailored and impactful support.
Several asset managers still require significant human support and/or resist change in adopting digital projects
Asset servicers encounter significant challenges in digital adoption, with 73% hindered by a lack of standardization, 41% facing limited digital platform use by asset managers who prefer human support, and 36% dealing with client resistance to new products. These issues highlight the necessity for user-friendly digital solutions and robust client support during digital transitions. Additionally, this suggests an opportunity for companies to transition from service-centric to product-centric businesses by offering SaaS-like digital products in the future.
A compelling vision for the future
Looking to the future, a number of eventualities are predicted.
Strategy and organization. Asset servicing is expected to move towards a digital-first strategy, with a shift from human-dependent operations to digital reliance. This will lead to a mix of products and services, and an extensive array of SaaS solutions, impacting pricing models towards value-based fees. The role of Chief Digital Officer/Chief Innovation Officer will become more crucial for managing risk and investments.
Customer centricity and operations. Client platforms will centralize customer interactions, such as onboarding and updates, with self-service options supported by GenAI to increase efficiency. The goal is to achieve over 70% hyper-automation, reducing manual tasks and enhancing operational transparency and risk management through real-time tracking and analytics. At the same time, asset managers will need to be guided through this digital shift, with appropriate change management strategies.
Technology and innovation. Asset servicers will create digital hubs for operational support and ongoing product development, led by innovation teams. The focus will shift from reactive problem-solving to proactive technology adoption, with an emphasis on continuous learning, at the firm and customer levels, to integrate emerging technologies across the business.
Summary
Asset managers' expectations for better service delivery leveraging technological advancement at optimized cost of service are compelling asset servicers to fast-track their digital transformation investments.
