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Moody’s: asset managers beware the Apple and Facebook fund

Moody’s: asset managers beware the Apple and Facebook fund

Big tech firms such as Apple, Facebook and Alphabet - Google's parent company - will wrestle a slice of retail financial services away from asset managers and other finance firms, launching their own index funds and robo-advisors.

That’s according to a report by Moody’s, which warns that technology firms will offer a better value proposition to consumers with better user experience, lower costs and more innovative features.

In a central scenario forecasted by the ratings agency, finance firms will cede a portion of control over financial services to the big tech firms, with many finance companies developing digital platforms or niche services as a result.

According to the report, tech companies are most likely to enter finance through ‘simple products that are most core to their businesses’ like payments, creating transaction accounts through money market funds or partnerships with banks.

Once created and with financial value stored there, they become the gateway for converting client funds into longer term financial products, Moody’s said.

In launching new financial products, the ratings agency believes technology firms will likely focus on the front end of the value chain touching the client, and as value grows within a platform, ‘other products will be developed whose primary purpose is to grow value, such as low-cost index funds'.

It added that financial advice would follow, with offerings such as investment and savings advice, and solutions such as robo-advice and financial planning.

The report continued: ‘As this range of product offerings grows and meets more financial needs, client engagement will increase and consumers will have greater incentives to stay with a given tech brand.

‘Tech companies, meanwhile, will be able to capture new types of consumer financial data. Against a backdrop of heightened public concerns over data privacy and potentially increased regulatory scrutiny, we anticipate that such data will remain immensely valuable: in addition to payment and purchase data, financial data also provides insight into a consumer’s economic profile and needs.’

It highlighted Alipay and WeChat Pay - part of Alibaba and Tencent, respectively - in China as examples of tech firms moving into financial services, with both offering mobile payments, money market funds and insurance policies, with wealth management products available via third parties.

Moody’s said the biggest threat to asset managers in particular is ceding control of customer relationships to tech companies.

It highlighted mutual funds in particular as a risk, with the growth of the fund management industry increasing the ‘homogeneity’ of product performance, making distribution an ‘increasingly important’ means for asset managers to gain a competitive edge.

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