“We’re about helping clients with business transformation, not just the technology,” said Damien Mooney, Asia-Pacific head of Aladdin wealth tech at BlackRock in Hong Kong.
His job is to commercialize the firm’s proprietary asset and risk management system, Aladdin, to private banks and other large-scale wealth managers.
Last year HSBC’s wealth management business became a client in Hong Kong, which the bank is now rolling out more aggressively across the region. In the U.S., Aladdin Wealth clients include Morgan Stanley and UBS.
Aladdin was originally developed for BlackRock’s own asset managers – indeed, the world’s biggest asset management company was created on the back of its proprietary risk analytics and portfolio management system – and is now used by many third-party fund houses.
BlackRock manages $7.4 trillion of assets, as of end December, while $18 trillion of industry assets are managed by 225 institutions globally on the Aladdin platform. The company is also integrating alternative-investment assets sourced from eFront, which BlackRock acquired in 2019.
In Asia, BlackRock is not positioning Aladdin as a direct-to-consumer technology. The asset manager not entering the B2C world, even as rivals such as Vanguard tie up with Ant Financial to do exactly that.
Rather, it is vending its tech know-how to financial advisory firms, under its corporate affiliate BlackRock Solutions.
From brokerage to advice
To make it work, though, requires helping these wealth managers transition their business model from being paid for selling product to being paid for selling advice and service.
It’s a transition that was forced on wealth managers in markets like the U.S. and the U.K. by regulatory moves such as banning commissions.
The trend has been slow to take off in Asia Pacific, even in a market like Australia, with its large, sophisticated and retail-facing superannuation industry.
One market tried: in 2009, the Securities Exchange Board of India banned front-end loads on mutual funds. The result: bank salespeople, unable to profit from selling investment products, stopped altogether. Investment trusts are now a B2C market in India, which might be okay for consumers but yielded banks nothing.
Market forces are nudging wealth managers away from traditional dependence on transaction-based models toward advisory-based revenues across the region, albeit unevenly, Mooney says.
Customer expectations are changing, with investors more eager to manage their own investments and structure their own portfolios, rather than limit themselves to off-the-shelf funds or structured notes.
Meanwhile, technology makes this much easier to do, at scale. Fintech and robo advisors represent one aspect of that change, in the B2C space. At the institutional level, Aladdin Wealth supports advisors who face a greater demand for transparency and insights into complex client portfolios.
The Covid-19 pandemic may be speeding things up as well. “We’re seeing more banks accelerate their evolution of how relationship managers and clients interact, assumptions around risk models, and how they present long-term planning solutions,” Mooney said. “How are firms changing in order to survive? What regulations might emerge after this? It’s an extraordinary time, and it’s emboldening firms to use technology to scale and future-proof their business models.”
In markets such as Australia, the fee-for-service model is becoming mainstream. Mooney expects forward-thinking wealth managers in the rest of the region to follow suit. “Progressive firms will view this as a ‘when’, not an ‘if’,” Mooney said.
He argues this is the case because wealth managers are under growing pressure from their own customers to show value, which requires a better servicing model, complete data-driven insights, personalized content, scenario planning, alerts, and other features necessary to meet client expectations around the digitization of advice.
Mooney continues to look for fintech acquisition or partnerships in Asia, although nothing has yet come out of that. In the U.S., BlackRock has acquired eFront and robo-advisors Future Advisor in the U.S. and Scalable Capital in Europe. It is a significant backer of another illiquid-asset platform, iCapital Network, and in micro-investment fintech Acorns.
Although these acquisitions and investments demonstrate BlackRock’s interest in fintech companies, in commercializing Aladdin for the wealth market, the firm is also a competitor to fintechs offering “asset-management-in-a-box” at the enterprise level.