King Canute was a wise king, he died (where I was born) in Shaftesbury, he was a Viking who became our Christian king, he taught his court that he could not hold back the waves and that there was a greater force that controlled the tide. Shaftesbury is the highest hilltop town in England.
The British fund management industry and in particular their trade body the Investment Association are building sand-castles on the shoreline and hoping the tide won’t come in.
The tide is technology, it is coming in – what next?
Here is Oliver Wyman’s prognosis for the growth of the blockchain (rather more bullish than Robeco’s recent report which I talked about earlier in the month).
In this wave, distributed ledger technology and smart contracts will likely be used in combination to store and share core transaction data.
Distributed ledgers can enable a data environment in which asset managers track their investments, develop products and provide client services.
Given the real-time nature of data transmitted via blockchain, up-to-the-minute risk and performance analytics can be made available to clients. Investors will be able to access their own transactional data through direct ledger connectivity or via vendor-provided interfaces in real-time, providing a new means of self-service reporting.
We expect these Wave 2 applications to be developed in stages and to begin to be adopted in the next two to five years.
Initial pilots may run in parallel with existing processes to minimize any unwanted effects on clients. As the overall ecosystem and end users build up their confidence in the distributed ledger solution, we will see volumes begin to migrate.
Over time, redundant back- and middle-office data infrastructure can be retired, cutting costs.
The really important paragraphs (to Transparency of costs and charges) are the first and last paragraphs.
Distributed ledgers ( of which the Blockchain is one) keep records. They do so in real time, records are immutable , nothing can be hidden. They will result in a more transparent view of what we are paying for funds. As a result we will have a reliable source of data for the “money” element of “value for money”.
This technology will also drive down the cost of intermediation by making back and mid office infrastructure redundant.
Not just funds but fund administration and member record keeping systems will adopt the new distributed ledger technology. I am urging those that will listen to wake up to this and not sink more money into shoring up our sandcastles.
But people are worried, people taught to look at change in terms of risk, see the disruption of our “business as usual” as a threat not an opportunity.
Depending on you glass full/empty perspective, this either means moving people from costing money to adding value, or it means mass redundancies. The immediate impact of Christmas , is not best left to turkey.
The tide is coming in -either you rejoice or you fret
Anyway the new distributive ledger technology will reduce the cost of providing pensions. Let’s think about the positive implications
- We will be able to know that any charge cap is a cap on what we pay, not what pension providers want us to think we pay
- Pension providers will become more efficient and either hideously rich or a lot cheaper for their customers
- People’s confidence in workplace pensions will be increased, they may start to be trusted by the “mass of the market”.
The vision of the Pension Plowman
There are other consequent benefits for other parts of the market. For those running de-risking programs the liability driven investment algorithms will be commoditised, the expensive investment consultancy fraternity will have to hand in their notice and go and do something productive (Redstart for instance).
In the City, the trading floors can become excellent five aside football pitches.
The Investment Association will become a proud flag bearer for a new self confidant asset management industry that makes its money from managing assets – not trading them.
The tens and thousands of people , released from staring at computer screens all day, will be free to do something constructive with the rest of their lives.
Some of this is fanciful, but it is a fancy devoutly to be hoped for.
King Canute was a wise king, he saw that he could not withstand the inevitable impact of the tide and taught others the same lesson.
He got wet doing so – and is often remembered as foolish – simply for getting wet.
But those in the know, see him as something of a hero!