Gandy Gandidzanwa & Itai Mukadira

While generally the pension fund industry has moved to adopt digital technologies, few firms have meritoriously integrated such technologies into their processes.

Advances such as artificial intelligence, blockchain, machine learning, data harvesting and processing, cloud computing, and robotic process automation, if properly adopted, have the potential of driving real change for the pension fund industry. Central to this entire drive would be, of course, the need for mass customization and mass distribution. This though remains pretty much a foreign concept for most in our industry.

“Programware”, a term we are helping popularize, refers to the assortment of software and digital technologies a firm has at its disposal that gives it the edge to execute and deliver on its outcome-focused missions to the right clients at the right time, effectively, and consistently. Be the clients pension fund members or otherwise, the benefits are the same.

Pension Fund Fintechs
There are seven compelling factors today that make tech-centricity a must-have mindset for every pension fund management firm. These are: fee pressure and margin compression demanding that traditional and expensive labour-intensive processes be replaced with more cost-effective tech-enabled processes; an undeniable proof that machines are better than humans; arrival of a new breed of pension fund members, the millennials, with their digital-centred lifestyle; explosion of information-rich alternative data and the corresponding rise in computing power; ever stricter regulatory requirements; a crisis that has changed human behaviour and consumption patterns for good; and, an ever-growing and real threat from fintechs to takeover if the industry remains complacent.

Top industry leadership needs to demonstrate an obsession with technology. Tech leading pension fund management firms are tech-centred and are contemplating transforming themselves into digital enterprises – organizations that use technology to continuously evolve all aspects of their business processes.

This transformation spans across all the functions of the business – from what it offers, to how it operates, and to how it interacts with its real end clients – the members. While this transformation will certainly threaten current jobs and legacy systems, it is an edge that newer firms would be more than willing to demonstrate as they neither have legacy systems nor huge staff complements to worry about.

Newer entrants that would be at the forefront of harvesting technological efficiencies will reap huge benefits in their cost-cutting efforts. While set up costs could be high, once a system is up and running, maintenance and support costs can be significantly low. Where a firm views itself as, first and foremost, a fintech and then a pension fund management firm, there would be an inherent drive to responsibly experiment with different technological innovations aimed at improving productivity, hence bringing down the overall costs of offering services – something that our industry needs so badly.

Time spent researching new and redesigning old technological infrastructure will evince the depth of a firm’s dedication to lead with technological advancement. IT Research as a cost centre will be seen to be receiving a lot of attention and budget allocation. Not only are IT Research centres a rarity in our industry today, even just Research in general is also not such a common sight within firms in the industry.

Critical though to debunk the notion that more technology, in and of itself, equals greater competitive advantage. While it is proposed that it becomes a cornerstone of the pension fund industry, technology remains a tool and its efficiency is pretty much a function of in whose hands it is lying.

With imminent mass adoption of tech-centred newer-entrant models, technology adoption for the sake of it will not create sustaining competitive advantage on its own. The incumbents will continue with their dominance if technology is not properly adopted by the new entrants.

Data Proliferation
Just in the last two years alone to 2020, the world has collected more data than all the data ever collected in the entire human history. What’s even more exciting is that this data production continues to grow, exponentially so.

It will not be long before in one year we produce more data than we have ever produced in our entire history – and before we even know it, we will be down to half-year comparisons, quarterly, or even monthly. The rise in the number and variety of electronic gadgets from which this data is being generated, routed to capacity-limitless servers, and harvested therefrom, promises of a world of even more data.

All that vast information provides fodder for the industry to better understand the needs, wants, desires, and aspirations of its members. That every member is different, with unique tastes and preferences, seems to have been missed by the early crafters of the industry value propositions. Generation after generation of industry technocrats that followed them seem to have consistently missed it too. The current generation of industry practitioners certainly has a golden opportunity to change the trajectory of the industry.

As the industry tags along in this direction, there are five key areas where adoption of the latest thinking in technology will play a critical and differentiating role.

Distribution and Client Relationship Management Technology
Consumer analytics is now the new oil that fuels the new machinery of any product provider – retirement funds included. The mass customization and mass distribution push is all driven from a point of having enough information about members to be able to deliver customised solutions that are informed by their online personalities.

Every online activity now has a footprint, and retirement funds, like most other industries, need to be racing to be at the forefront of tracking those footprints – analysing them to understand behaviour and offering members retirement fund solutions that are consistent with their observed preferences. In the near future, the ultimate prize will go to retirement funds whose digital tools can reveal what members want, when they want it, even before they know they want it.

As the average member becomes more digitally savvy, a user experience that is real-time, omni-channel, and self-service moves from a nice-to-have accessory to a must-have capability for every pension fund management firm. This is especially so in an environment where members can vote with their feet and are not tied to their employer’s choice of the pension fund to house their retirement savings.

Retaining current clients through high quality, customised service is the first step towards growing a business in any industry, and the retirement fund industry is no exception. Members need to be able to consume information about their retirement savings the way they want to and not the way the industry thinks is how they want to.

Client-centricity is the glue that should keep different aspects of an industry together. While it is quite common to find everyone in the industry not lost to the idea that their clients are kings, in the absence of a tech-driven convergence, this “consumer sovereignty” mindset might though mean different things to different people. Any, and every, service provider needs to invest heavily in robust Client Relationship Management (CRM) technologies that enables it to offer “hyper-personalised” services to its clients.

Evidence of a solid investment in CRM technologies and infrastructure provides confirmation that the firm will be able to provide on-demand reporting. This is certainly a much-required capability now as members do not want to only consume what is pushed through to them, but would want to be able to pull from the system aspects of their retirement savings and risk benefits that are of particular interest to them.

They want self-service functionalities that allow them to instantly access information and create tailored reports. Monthly statements and annual benefit statements no longer cut it as members want to now be able to consume this information on-the-go. They want information that they can analyse using different online tools availed to them as part of a member-centric CRM system.

Risk Management Technology
Risk management has always been central to pension fund management. No doubt, this focus has been heightened following a number of global events that have left members with huge losses in their retirement savings pots.

The most recent ones are the Global Financial Crisis of 2008/2009 (GFC) and the COVID-19 pandemic of 2020/2021. Specific to us also of course are losses related to episodes of hyper-inflationary and acute currency depreciation environments of 2008/2009 and 2020/2021 as well.

The increased need for monitoring of risk requires that funds and their service providers have tools to access and deploy ready-to-use and relevant data into their models, mapping it to known and new risks. Big data inputted into the right technologies provides insights into real-time and changing market circumstances to help identify threatening environments and adverse trends in advance – allowing a pension fund, or its service providers, to employ risk management techniques sooner to help preserve value.

Technologies that can identify nonlinear relationships in asset market data are likely to produce portfolios that are better able to adapt to changing market environments and even anticipate future changes, which may result in more efficient portfolios. A pension fund that is directly, or through its asset managers, not incorporating technologies to analyse these relationships certainly has a missing piece of arsenal in its toolbox.

Regulatory Technology
Even where a retirement fund, or its service providers, are not risk-management-focused in their processes, the continuously increasing amount and depth of reporting required by regulators means they cannot avoid being tech-driven that much any longer.

The stringent worldwide requirements that regulators have imposed in their different jurisdictions have meant a sharp increase in the burden and costs of governance and compliance. Such costs, where they are not properly managed, ultimately are a drag to performance and it is the member that loses out at the end. How a pension fund meets its compliance requirements should thus be of interest to members.

From monitoring investment mandate breaches to general regulatory breaches, and from compliance monitoring to governance oversight, a fund needs to leverage the power of technology to minimize the likelihood and severity of any of these costly breaches. For most funds, these processes remain pretty much manually managed.

Although out of the control of any one individual fund, we are anticipating seeing an industry-wide adoption of Distributed Ledger Technology (DLT), aka Block Chain, in the not-so distant future. Not only will this improve the speed with which transactions are recorded and captured, but it will also foolproof the whole process, eliminating loopholes for fraudulent activities and transactions.

As regulators connect to these ledgers, their demand for greater transparency and access to data will be immediately met. Most importantly, it will be secure and safe, and yet readily accessible. This interconnectivity will be the bedrock to shared information, communications, and transparency within the wider retirement fund ecosystem of pension funds, asset managers, benefit administrators, investment administrators, insurers, exchanges, custodians, regulators, and many other stakeholders of the ecosystem.

Operations Management Technology
Lack of penetration of operations technology within the industry is most evident on member-fund touchpoints. Simple processes of getting a member’s contributions to be invested in the market following a deduction at payroll remains such an onerous and elongated procedure that is marked with unnecessary delays. While this is bad enough, what is even worse is the reverse process of getting a member’s benefits to reach their account following their exiting of a fund. The industry seems to have been very comfortable with a normal that is such a huge inconvenience to those that it purports to seek to delight – its members.

In-between these end touchpoints, any other interaction between a member and their fund is infamously popular for unexplainable delays and drags. The retirement fund industry wheels just tend to turn excruciatingly slowly for the comfort of its members. Sadly, they have not been given the choice to realise that their experience could be much better. A lack of competition and innovation in the industry has not helped improve their experiences either.

Automation of processes would eliminate these types of inefficiencies. Members should challenge their funds, and service providers, to declare what their take is on the adoption of technology to replace some of the manual processes. Automation would immediately improve the interaction between different entities in the retirement fund value chain, allowing them to evolve from a linear handoff to a more real-time, industry-wide collaboration model.

This will diminish the significance of the boundaries between the different service providers and help eliminate much of the man-made hurdles and delays. As more and more of the processes are automated and integrated, there would be a huge reduction in headcount with the humans that remain behind simply acting as guardians of the machines, stepping in when operations get dicey, to resolve disputes, or when instructions need re-routing.

Cyber Security Technology
The rapid adoption of technology and expansive growth of global digital networks has seen the emergence and rise of a very harsh and spineless new economy developing in the underworld environment – the economy of data theft and cyberattacks. Interconnectedness of electronic data warehouses with vast amounts of confidential, classified, and personal data has driven a massive rise in unlawful attempts to access it for nefarious and fraudulent reasons. Indeed, the financial services industry has not been spared. Banks have been largely the targets, but we are seeing an equal level of aggression towards asset management firms by virtue of their strategic positioning and access to the vault of trillions of dollars of financial wealth of both individuals and institutions.

These attempts are prevalent across the entire value chain of the industry targeting especially the weak nodes of the chain in the hope of gaining penetration into the system. Although the threat has always existed, latest developments have heightened this threat, elevating it now to one of the key risk management concerns that every financial services entity, including retirement funds and their service providers, should be pre-occupying themselves with. It certainly threatens the very existence of not only funds and firms individually but has a systemic element to it if not properly secured.

Conclusion
The retirement fund industry has largely remained a laggard when it comes to technological adoption. With the arrival of new players in the industry, the dominance of the traditional model is threatened. In this article we have shared some of the low hanging fruits that industry players could start looking at if they are to have a marked head start.