Innovation and Technology Management Metaverse Strategies for the Asset Management Industry Jon Smit Introduction Through this paper I will take a close look at the emergent metaverse and its potential contributions to the Canadian asset management industry. Specifically, I will use my six years’ experience working with financial advisors across Ontario to provide context for how an asset management firm might use a metaverse strategy to gain a competitive edge. Defining the Metaverse The metaverse is neither a new term nor concept. In the 1992 novel Snow Crash which first used the term metaverse, the main character, Hiro, uses goggles to connect into an avatar with which he navigates a virtual world. He owns property in this world which he describes as being far more attractive than his “20-by-30 U-Stor-It” physical home, which is luxurious by virtue of its corrugated steel walls separating it from other units. People in the novel access the metaverse to date, look at art, and make money, among other activities (Stephenson, 1992). Though the concept predates Stephenson’s work, this nevertheless serves as a good early description of ways in which we can currently interact with the metaverse. Despite his foresight, this is not an exhaustive list, as many of the technologies that will define the metaverse and its capabilities are nascent. Attempts to define the term struggle to capture the enormous future potential while staying rooted in present constraints. The metaverse currently encompasses virtual worlds, gaming, and concerts among other unique tools (Ravenscraft, 2021). Cathy Hackly captures this and more, defining the metaverse as “a convergence of our physical and digital lives” that it is enabled by many of the cutting-edge technologies like 5G internet and virtual reality (VR) which are still in development (Hackl & Alaghband, 2022). This broadness of definition is important; to narrowly focus on a few specific technologies stunts the creativity needed to realize the full promise of the metaverse. It is a fundamental shift in how we integrate and unite the tangible with the digital world and in turn interact with it. Armed with this comprehensive definition of the metaverse, we might select each creative technology or characteristic of this new world and label it as innovative. However true technological innovation necessitates a narrower definition. Schiller appends the requirement of an “application to commercial or practical objectives” to the introduction of new products, services, or methodologies for them to be considered technological innovations (2020). Through this lens, the metaverse is innovative not because of the technologies it uses but because of what it enables us to do. With Hackl’s definition in mind, the metaverse is innovative because has the capacity to integrate the benefits of technology more broadly and deeply into our lives. Features common to purely digital settings like rapid data collection and analysis, interface customization, and visualization when integrated into a metaverse through technologies like VR and blockchain on 5G networks could radically change how we live our lives. The Metaverse in the Canadian Asset Management Industry My professional background is in business-to-business sales, having spent the last six years in the asset management industry. Firms in this industry create investment products including mutual funds and ETFs and market these through either in-house or third-party financial advisors. The metaverse could impact this industry in multiple ways, from the product that is created to how it is sold. To analyse this, a few unique characteristics of this industry must be noted. Asset management firms have limited direct contact with end-investors; a firm’s clients are either individual advisors or institutions making recommendations to or decisions on behalf of investors. Because of the attractive margins this industry has historically offered, competition is very stiff. Asset management firms spend large sums of money on entertaining and educating advisors in hopes of building relationships with them. Because of the industry’s margins, penchant for wining and dining clients, and the inherent complexity of the products being sold, there is a strong regulatory presence. Regulators have a broad mandate that covers product, client communications and entertainment, and performance reporting. As all these areas could be impacted by firms seeking to implement a metaverse strategy, it is important to consider the tempering impact that regulators might have on the way asset management companies approach this space. Most financial advisors express two fundamental needs from asset management firms: superior performance of investment products and relationships. Product performance is difficult to predict and achieve yet is the more important of these. Traditionally, asset management firms spend aggressively on talent and technology to provide their portfolio management teams (PMs) an edge over competition which can translate to superior performance. An advisor’s relationship with an asset management company is influenced by several factors. Good service, benefits like entertainment, and receiving exclusive access to these PM teams are among the most key factors typically listed. All of these can be uniquely met by metaverse strategies with which asset management firms can experiment. Creating an investment strategy that outperforms its peer group is challenging. Though there are multiple components to this, critical to success in this area is having the best people working with exceptional analytical tools. Modern successful investment managers also incorporate new asset classes into their portfolios. Achieving a superior rate of return without taking on excess risk can be achieved in part by pairing investments in uncorrelated asset classes. This is the basic principle of diversification. First, brilliant and talented money managers are not unique to any one country. The technical background required can be developed anywhere in the world, yet most investment management companies are limited to hiring within their own countries. One of the core promises of the metaverse is greater connectivity and a company that seeks to hire analysts through the metaverse could greatly expand its pool of candidates. Though video conferencing has helped introduce the concept of the virtual worker, it still places limits on highly collaborative teams, creating an imbalance particularly when some members are collocated while others are not (Deshpande et al., 2016). The heightened interactivity offered by a metaverse setting for meetings could help mitigate this issue, and in doing so help open a pool of international talent that has previously been accessible only through satellite offices. It could also provide this same flexibility to PM teams as they travel to visit different companies. Second, the metaverse will rapidly expand the new investing frontier that is the non-fungible tokens (NFTs). Current PMs have no exposure to NFTs as an asset class. Strict regulation and a lack of clear economic utility of many tokens makes most NFTs highly speculative and not suitable for the traditional client of an asset management firm. Given the expected growth of the metaverse, this market will certainly develop and mature and may create a thriving real estate market like that described by Hiro in Snow Crash. Opportunistic firms that get approval from regulatory bodies will have an excellent competitive edge. Given the difficulty in manufacturing investment strategies that consistently deliver superior performance, building and managing strong client relationships is critical in achieving success in the asset management industry. Service, entertainment, and access to PM teams or educational content could all be impacted by a metaverse strategy. Implicit in all of these, at present, is contact between an advisor and an asset management firm. If the advisor has a question about a statement, current positions in a fund, or is being taken out to a concert, they will be engaged with the service, PM, or sales team. In all these instances the metaverse offers an alternative to a telephone or video call, and even a virtual setting for a concert. One unique characteristic of financial advisors in Canada, however, is their age; the average advisor is 50.1 years (Calabretta, 2021). Age negatively correlates with openness to experience, suggesting that voluntary adoption of the metaverse by this group may be slow (Donnellan & Lucas, 2008). While having a dependable relationship with an asset management firm is important to financial advisors, it may be that metaverse does not immediately provide enhancements. Though investors seek higher returns and may be keen to invest in new asset classes, the more conservative bent of many older financial advisors could slow adoption. The S-curve adoption model that typically applies to recent technologies has gradually steepened over time; the adoption of the cellphone happened much more quickly than the telephone (Schiller, 2020). Nevertheless, the restrictive regulatory framework of the asset management industry and the age of its occupants could see less demand expressed for some of the innovations offered by the metaverse. ESG Concerns and the Metaverse ESG in the asset management industry is a popular theme. Assets in responsible investment products grew 48% between 2017 and 2019, as this category has steadily gained in relevance for investors (RIA Canada, 2020). Despite the interest from investors, the industry worldwide has low participation from women. In 2019, fourteen percent of fund managers were women, a figure unchanged since the 2000 (Silano, 2021). Though racial diversity stats are less readily available, my own experience indicates that the racial gap is not dissimilar to the gender gap. For a company to successfully implement metaversedrive human resources strategy, it must endeavour to do so in ways that seek to bridge this gap. The remote hiring opportunities enabled by the metaverse could be an excellent tool in getting more women and persons of colour into the industry. Should a firm head down this path, it must avoid the temptation of over-using screening processes that can be rife with bias. Broadening its talent pool through increased diversity is an opportunity to improve the skillset at a company and can be achieved with a metaverse-driven human resources strategy. In addition to a lack of diversity across the industry, the typical approach taken by most firms to meet with their clients sees salespeople frequently driving long distances. I drove nearly 40,000 kilometers per year in my role. Though video conferencing has initially provided an alternative to the in-person meeting, if metaverse meetings and conferences are adopted, this would result in a reduction in emissions from this industry and cost savings on mileage. Recommendations Adopting innovative technologies is difficult for an industry with significant regulatory limitations and an older workforce. Nevertheless, the opportunity presented by the metaverse is significant. To realize these benefits, firms must adopt new attitudes and techniques with direct links to innovation theory. Given the broad definition of the metaverse, the aforementioned ideas are by no means an exhaustive list of projects a firm might undertake. Using screening questions to clearly articulate the way clients and staff might benefit from each project is a vital step in maximizing long-term return on investment (Schiller, 2020). Most firms will lack the in-house capabilities to take on metaverse projects internally making collaboration with outside firms vital. By strategically outsourcing or licensing out development of these and other projects, asset management firms can retain reasonable project control while integrating their own unique capabilities into a project (Schiller, 2020). During my time at one company, I worked as a representative of the sales force on a software project being designed for advisors. The project had required large investments and experienced constant delays due to changing priorities. This all-or-nothing approach is reflective of a common attitude in financial services as whole, where the preference is for a single instance of sweeping change. Adopting an agile model for those projects that can be managed internally may help. Using siloed groups which repeatedly iterate on new design ideas could see a firm rapidly develop a competitive edge at a lower cost (Schiller, 2020). Overall, the firms in the asset management industry could benefit greatly from implementing an effective metaverse strategy. 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