The State of KYC in Asset Management 2024: Insights and Strategies

As the asset management industry evolves, so do the challenges with Know Your Customer (KYC) and investor onboarding. Fenergo’s KYC in 2024: Essential Insights for Asset Managers research survey, conducted with over 450 C-suite executives from Tier 1 ($51 billion or more in assets under management) asset management firms, highlights the pressing issues affecting the sector, from rising compliance costs to investor churn. 

To further explore these findings and dig into the reasons behind the data, Fenergo brought together experts from PwC, Brown Brothers Harriman and Cutter Associates. You can watch the full session here.

In this blog, we’ll explore some of the report findings, sharing insights from our webinar panellists and outlining strategies to tackle these challenges effectively.


Investor Onboarding: The Critical First Impression 

Investor churn remains a significant challenge for asset managers, with 74% of surveyed firms reporting investor losses due to poor onboarding experiences. The top grievances? Repeated documentation requests (40%), complex processes (38%), and onboarding delays (36%) 

Adrian Whelan, Head of Market Intelligence Group at Brown Brothers Harriman, discussed the importance of first impressions: “AML and KYC used to be seen as a regulatory compliance obligation, but now it’s much more than that. You need to impress and delight your clients on their onboarding experience”. Whelan continued “First contact is absolutely critical. If that investor is not satisfied or delighted, they won’t come back.” 

Neil Sheehan of Cutter Associates adds, “The industry is huge but at the same time it’s quite small – if you are known for providing a poor investor experience, that does hinder your ability to grow.” 

To minimize churn, firms must streamline onboarding processes, emphasizing seamless and frictionless experiences. As Rory Doyle from Fenergo suggests, “The one thing that annoys investors more than anything is being asked for documentation repeatedly. If you can minimize this then you are on the path to success.” 

The Rising Cost of Compliance 

The financial burden of KYC is another pressing concern, with a single medium-risk review costing firms $2,397 and 65% of firms allocating over 30% of their compliance budgets to KYC processes alone. 

Upcoming regulatory changes in the US and EU, such as FinCEN’s new rules for investment advisors, are expected to increase short-term costs further. However, Rory Doyle notes that long-term harmonization in regulations could bring economic benefits if firms invest in adaptive technology today. 

Adrian Whelan discusses automating processes as a key solution: “Manual processes equal increased cost and risks, and a decrease in quality”. He goes on to say, “AML has become too complex and large scale to rely only on humans. You can reduce costs by using technology in tandem with your legal and regulatory experts.” 

Graham O’Connell from PwC echoes this point, suggesting firms can drive down costs with “More automation, better data and a better tech stack.” 

The Importance of Centralized Data 

Operational inefficiencies plague many asset managers, 73% cite fragmented data and workflows, along with an opaque client view as their number one challenge. Centralizing data can eliminate silos, enabling firms to provide a single, transparent view of the investor. 

Adrian highlights the importance of removing silos, “Everyone should be asking themselves: Are we operationally efficient? Are we using technology smartly to reduce these data silos, while being cognizant that there’s legal, regulatory and cross-border issues that will leave you still with a certain state of silos? Using technology to reduce silos as best as you can is the only way you can operate in 2024.”

By adopting cloud-based systems and having a strong focus on data strategy, firms can reduce manual processes and empower stakeholders to access and manage data seamlessly. 

The Role of AI in KYC 

The KYC in 2024 survey reveals that 72% of firms report manual KYC and labor-intensive data collection processes is their top operational challenge. 

Artificial Intelligence (AI) is emerging as a transformative tool for tackling these manual KYC processes. The panellists discussed the value of using AI for a risk-based approach to financial crime, enabling firms to focus their efforts on high-risk assessments while automating processes for low-risk assessments.  

However, Rory stresses how successful AI implementation hinges on high-quality data and regulatory compliance: "Whatever AI or machine learning techniques you decide to introduce into your AML programme, you must ensure they are explainable to regulators. Start slowly and work your way up.” 

Adrian echoes this point, stating, “AI is the future, but it now comes with a slight regulatory risk. You need to understand why and how you are implementing it.” 

When applied effectively, AI can automate labor-intensive tasks and improve decision-making.

Preparing for Regulatory Changes 

With 77% of firms admitting their systems are not sufficiently flexible to adapt to changing regulatory demands, planning is more crucial than ever. Adrian succinctly puts it: "Adapt or die." 

Graham encourages asset managers about looking at regulatory obligations in a positive light: “Changes in regulations is always a helpful opportunity to introduce transformation. You need to understand the impact of them to your organization and what you need to change”. He adds “Process mapping can help you understand what you are doing now and what you need to do to meet new regulations. Your system may not be immediately flexible, but your process can help you get there and help you build a case for changing and transformation.” 

Process mapping, horizon scanning and investment in technology are essential to navigating the evolving regulatory landscape. Failure to do so risks reputational damage and missed opportunities.


Conclusion 

The findings from Fenergo’s KYC in 2024 research report reveal an urgent need for asset managers to modernize their onboarding and compliance processes. By embracing automation, streamlining processes and centralizing data, firms can enhance the investor experience, reduce costs and stay ahead of regulatory demands. 

Download the full KYC in 2024 Report and explore the data.