How wealth and asset managers address cost imperatives

It is without a doubt that over the last several quarters, wealth and asset managers are reacting to cost and margin pressures. The pressures have been driven by unprecedented macro-economic factors and uncertainty of outlook over the next couple of years.

Macroeconomic factors including the increasing cost of capital and declining market indices have driven an immediate financial decline and outlook for wealth and asset Managers.

Further, over the last 5 years, we’ve seen wealth and asset managers invest heavily in technology and systems to meet the needs of growing Assets Under Management (AuM) across the industry.

Of all the industry pressures, the greatest comes from operating in a time of uncertainty that is driven by increasingly complex global, geopolitical, macroeconomic, and social factors. This has led executives to rethink their forecasts, carefully consider alternatives and frame actions that mitigate these pressures.

At KPMG, our team has observed cost and margin pressures play out across a range of clients.

In almost all cases, Chief Financial Officers (CFOs) are embedding cost challenges to address stakeholder expectations for cost containment without stripping the business of an ability to respond to market opportunities in the near to medium term.

However, we often see organizations experience “cost creep”, which is a function of costs returning to historic levels despite expenditure being halted. Costs return as new costs centers are developed and organizations find ways to incur expenditure and address business needs.

“An analogy we often use with costs is that costs are like your “front lawn”, despite how often you cut it, it always grows back and requires active management” Bosco Tong, Director, Wealth and Asset Management Advisory, KPMG in Canada.

Successful organizations often pursue targeted and rapid initial cost reduction programs which enables a set of "quick wins" or tactical cost savings. Initiatives include contract negotiation, vendor rationalization and resource optimization. The more sophisticated enterprises also regularly explore potential transformative levers such as operational / system simplification and process automation across their operating model.

Further, organizations often use the success of initial tactical programs to capture fiscal capital that can be directed towards undertaking more transformational activities across the business.

All told, wealth and asset managers are actively responding to today’s cost and margin pressures at their doorstep, and for a good reason. Expectations among investors, analysts, and other industry stakeholders are rising and we haven’t seen a current economic environment like this for some years.

To cut or contain. The reactions to cost and pressure margins have elicited strategies across organizations. Overall, forging ahead with confidence begins with seeing the full picture and having the appetite for change.

Truth be told, it's a journey; one which KPMG is proud to be supporting our clients navigate. It begins with driving transparency of and visibility into an organization's baseline of costs all with the intent of identifying areas of potential focus and cost-saving opportunities.

KPMG then works closely with business executives to help define an informed cost transformation ambition and to embed a cost culture within the organization. Short and medium-term cost saving opportunities are quickly identified, quantified, and executed with a view to locking in benefit in the current and future financial year budgets.

By driving a continuous cycle of cost optimization, cost transformation shifts from becoming a one-off activity to continuous day to day activity which will help an organization mitigate margin and cost pressures.

Given the current market uncertainty, cost and margin pressures aren’t likely to fade any time soon. Still, with the right strategies and informed insights, it’s possible for wealth and asset managers to create and retain enterprise value while positioning themselves to seize the market opportunities ahead.