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14 August 2019

Can RPA Tools Transform Investment Management, Creating Winners, Losers and New Players?

Robotic Process Automation (RPA) is a fast emerging and powerful form of business process automation technology. It is clearly going to have a significant impact within the investment management industry, allowing firms to take well-established routines and processes and have them run quickly and efficiently, and perhaps most importantly for some, less expensively.

With the industry facing the dual pressure points of a squeeze on revenues, along with the pressing need to transform and digitalise, the attractions of RPA are easy to see. Whilst I believe it will ultimately be deployed across the value chain, it is in the back and middle office where many people will look to initially derive value.

Currently firms are looking to bring greater efficiencies to their back and middle offices. Discussions around improving a Return on Investment (ROI) currently focus largely on adding scale, thereby pushing greater volumes through and decreasing the cost per transaction. Scale is either built through growing the AUM of the business or by leveraging an outsource supplier.

It is easy to see how bots can bring even greater efficiency here. Clearly, the large firms have the financial capability and motivation to use RPA technology across large parts of their business, reducing cost and bringing a more standardization and consistency. I see this as the initial benefit, but not perhaps the greatest long term ones.

As RPA tools are deployed to run standard processes for an investment manager the perceived benefits of scale are significantly undermined. Although initial benefits are likely to be with the larger firms, this is largely due to the attention they are giving to this technology. As the tools become established RPA and “productised” processing costs will become similar regardless of the size of the operation or the volume of processing. If standard processing within the back and middle office become fully optimized, this will change the value proposition and move focus to quality and client servicing excellence and away from scale.

Although the drive to deploy RPA tools is inevitable, it does not come without challenges. It will be interesting to see how investment managers can satisfy their clients and the regulators that they have complete oversight and transparency over the RPA processes, especially in the short term whilst this is new; thereby lacking an established and proven reputation. This will be especially challenging as unassisted RPA tools – sometimes called RPA 2.0 - are implemented. Here, the process can be instigated and managed by technology, without the need for user input, or authority.  This model will create more challenges for investment managers, as they will need to evolve new management procedures. Bots need managers and oversight, too!

The biggest challenge in implementing RPA tools is the culture of the incumbent investment managers. Their ability to embrace constant change and evolution is lacking. Existing and well-established processes and procedures need to be ripped up and improved. Currently investment managers’ market position is protected by their brand value and the high cost and difficulty of regulation. As technology, like RPA, reduces the regulation challenge, brand value becomes critical. In order to win the impending branding battles firms will need to focus on client service and quality. In this world, it will be interesting to see what the true value of scale is.

Technology is transforming our industry as we have never seen before. In the coming years its impacts will be hugely significant. Smart technology, such as RPA, will be a huge enabler. Its reach will go way beyond engineering and mechanics. This change presents very significant opportunity for existing and new players. I believe that some firms in our industry will step up and embrace the opportunity, but I’m also confident that some big names will struggle and disappear.