Digital is at the heart of DWS’ strategy
DWS (formerly Deutsche Asset Management), which went public last March, is Germany’s largest investment house with €700bn AuM. It has put the digital at the center of its corporate strategy with investment in technology to drive a competitive advantage for the company.
The German asset manager has invested in technology with 180 FTEs dedicated to digital to reduce costs – through RPA notably – but mostly to develop its business in both distribution and investment management fields (see chart below).
DWS has developed several proprietary digital distribution platforms expected to drive future growth …
- EDISON, is a digital front-end application for retail clients and independent financial advisors. It allows third-party distribution partners access to a fully functional fund platform, extending the fund offerings for DWS' professional clients.
- WISE is the firm's B2B2C white-label robo-adviser solution which provides digital discretionary portfolio management (DPM) services to clients in the EU. The platform charges a discretionary fee of 76 bps splitted between DWS and the partner. WISE harnesses the human investment expertise of DWS to generate strategic asset allocations and portfolio solutions. It offers a flexible product universe which is defined in conjunction with their distribution partners and can include open architecture or DWS specific ETFs as well as active funds.
WISE is designed to ensure a seamless digital journey for users which caters for the latest regulation requirements, including client profiling, suitability and appropriateness of portfolio solution as well as KYC.
DWS tied-up with Swiss insurance group Bâloise offering Monviso digital DPM service in Germany which combined both expertise. Recently, DWS also won a local financial advisory network as a client, Fonds Finanz with over 27,000 independent financial advisers and 350 employees. The firm launched an online investment manager, easyInvesto providing advisers and end clients with 19 different strategies that invest across ETFs managed by DWS and other asset managers.
Other firms that have joined DWS's third-party robo-advice platform are BfV Bank für Vermögen, Fondsdiscount.de, godmode-trader.de and VdW.
- DWS Direct is the group's direct distribution platform which drives 2% of DWS’ total AUM.
- IKS is DWS' fund management services platform which currently holds €100bn in assets under administration (AuA) for
1.5m end clients, 100,000 IFAs and 430 distribution partners.
DWS has also started investigating how to use AI to improve sales techniques and attract clients. The asset manager has exchanged data sets with several technology companies specialized in AI analysis. The company wants to use AI to introduce chatbots that can respond to simple questions from retail clients when they come to its website. It also wants to automate how it evaluates meeting reports filed by its thousands of sales staff to get a better indication of mass changes in client sentiment.
DWS additionally wants to sift through publicly available data on the performance of clients’ investments with rival asset managers. This could, in theory, help it judge when best to approach clients about switching their money into better-performing funds.
DWS has three specialists focused on AI, and the firm expects this will triple in 2018.
… including its ETF retail business
Robos have found a natural partner in ETFs based on their shared emphasis on cost. More than five years after robo-advisers emerged, almost 100% of their AUM consists of narrow portfolios composed of ETFs.
DWS, owner of ETF business DB X-trackers, is the 3rd largest ETF provider in Europe with $63.7bn AuM (DWS lost the 2nd rank following Lyxor acquisition of Commerzbank ETF business).
ETFs are widely used by retail investors in the US. It is not yet the case in Europe with retail investors holding between 20% and 30% of the market ; the same applies to Asia with less than 15% of total assets in a market dominated by institutional investors. However, many expect that robo-advisors and ETF strategists (e.g. an investment advisor that constructs portfolios of ETFs) are likely to accelerate the penetration of ETFs into portfolios of individual investors. According to a Cerulli survey, 1/3 of cross-border managers believe that more than 10% of mutual funds and ETF inflows will be attributable to robo-advice in five years.
The company sees digital platforms, especially robo advisory services, as promising distribution channels for ETFs. DWS Head of Digital stated: "We are convinced that robo-advisers will have a major share of the wealth market in the future, and since they are mostly using ETFs, that's beneficial for ETF providers."
In addition, DWS’ digital strategy objectives includes robo platform growth opportunities arising with the switch from defined benefit to defined contribution plans.
DWS, as others competitors, is consolidating its digital distribution internal capabilities with dedicated management
DWS is set to consolidate its digital fund platform business into a vertically integrated front-to-back structure with a dedicated management made of Technology and platforms specialists. Indeed, management will be made of two co-heads: the Head of Digital and the Head of platform management, former COO.
The new platform - IKS 2.0 - will gather the four above mentioned digital platforms with hopes of growing it from a transaction platform to a scalable digital investment platform.
This move takes place in a context of consolidation of the digital distribution observed among two major competitors:
BlackRock which has create a Digital Wealth division, a technology enabler of its distributors (broker/dealers, wealth managers, financial advisors) offering a full wealth technology platform: robo advisory (FutureAdvisor), enterprise risk engine (Aladdin risk for wealth), client portal and financial planning & reporting tools (iRetire) as well as knowledge center (Advisor Center).
This should help BlackRock to be closer to the end customer (BlackRock has no direct distribution capability) and enable the selection of underlying investment products.
UBS has launched UBS Partner a B2B digital advisory platform integrated into its Platform Services offering which includes management services (custody services, fund hosting) & UBS Fondcenter (distribution services, #2 in Europe). UBS Partner white-label technology solution scans banks’ client portfolios on a daily basis, assesses individual portfolios against corresponding risk profiles, key instrument quality criteria and investment goals.
DWS’ investment platform also to be strengthened thanks to advanced data analytics
Complementary to the sales and marketing fields, DWS’ digital strategy covers the portfolio management field, particularly by leveraging big data & machine learning capabilities into the investment platform particularly the Multi-Asset & Solutions expertise.
Using digital to generate cost-efficient alpha, DWS objectives are to:
- create a scalable core Multi Asset portfolio offering (eMAPS) including OCIO (Outsourced Chief Investment Officer) services which at a large scale involves a large data volume. Blackrock already uses its advanced technology and analytics expertise (together with extensive investment expertise and robust research platform) as a key differentiating factor in the OCIO business
- leverage individualization expertise for next generation retirement products that DWS calls “iLifeCycle” that would combine personalization with mass treatment. Advanced analytics can help adopt a client-centric approach with product management integrating advanced insights on life stage and life events.
High-level sponsorship of digital solutions across the firm
In a recent study Oliver Wyman has estimated at up to 20% the revenue upside potential that wealth managers can increase by embracing the full potential of data analytics. To realise this full potential change management is crucial. It involves a global digital strategy across the whole value chain and a strong sponsorship from top management. DWS has met these two conditions, with major heads of Business Lines involved, from the CIO to the Head of Distribution (see above).
“It is a question of life or death. If we do not invest, we will be obsolete.” (Nicolas Moreau - DWS' CEO)
Author: Eddy Arnaud - July 2018
