Revolutionise for scale
Alternatives – the new norm
The wealth and asset management industry has been evolving at pace for the last decade; we consistently hear about the next inflection point or revolutionary moment. Whilst there have been a lot of false dawns, the fundamental drivers of margin erosion, increased competition for product shelf space and ever-changing investor demands still remain. Layer this with a combination of wider socio-political factors, including Brexit, climate change and an unprecedented pandemic. This results in a rapid acceleration of shifts that were already underway, albeit less magnified.
We have spoken to leaders from across the industry to gain a personal perspective on how the macro changes in the industry have impacted the role of wealth and asset management leadership, and shaped their own roles and goals. We have initially met with CEOs, COOs, CIOs, CTOs and CFOs, which have highlighted interesting themes of commonality. This is our first wave of findings, and we will be evolving conclusions and insights by extending interviews to other leaders and members of the Executive Committee (ExCo) in the coming months.
Hearing first-hand what is at the top of the collective leadership agenda today, while reflecting back and looking forward, has been an insightful journey to delve into – seeing the transformational shifts and possibility when market drivers force the hand of change. The focus is firmly on revolutionary technology advancements, client centricity at the heart of the enterprise and the search for alpha by expanding capabilities, for example into alternative asset classes. The most notable change is the true awareness and appreciation of the crucial role that wealth and asset managers must play in the wider society, alongside their fiduciary duty to their clients. There is a real sense of motivation and urgency amongst the leadership within the industry to step up, do more and deliver a positive impact. The industry is moving beyond pure profit-making and economic growth, and sharing the asset owner beliefs of driving global societal impact and building a sustainable future for tomorrow and future generations.
It comes as no surprise that the focus of the modern ExCo is dramatically different from the historical focus – every generation of leaders has brought with it a new increment of digital and innovation-first mindset. In our data gathering exercise and interviews, we asked participants to highlight the top three words that they most associate with ExCo focus, looking across each decade. A key observation is that focus areas 10 years ago have not disappeared. In fact, the breadth and depth of priority items continues to expand:
Leadership teams need to adapt to match the changes the industry is facing and ensure that there is right connectivity at the top of the house. Click on the roles below to find out how different roles have evolved, and look out for more results and insights as we expand our survey to Chief Risk Officers (CROs) and Chief Compliance Officers (CCOs).
Our industry continues to face high levels of change. There were four recurring industry themes that the ExCo says are shaping the future of WAM. These are changing the dynamics at the leadership table.
Managers have a real societal responsibility and ability to use their buying power to make an impactful change through engaging with companies they invest in
ESG needs to become part of a company’s DNA, otherwise they will become unviable
Managers need to:
Managers have been in a continuous cycle of ‘chasing scale’, with majority of technology advancements being iterations of existing estates
Automation purely for efficiency could be seen as a race to the bottom – keeping up is no longer a viable option
Managers need to:
Wider macro environmental change and an increase in investor sophistication is driving the rise of alternatives
This growth will fuel the level of M&A activity like no other decade has seen
Managers need to:
Client centricity has expanded beyond client experience to an enterprise level, fundamental pillar of business strategy
Investment performance alone is no longer enough to retain clients
Managers need to:
The wealth and asset management industry is facing a seismic shift and a massive push for change, from the way that individual organisations operate to the brand perception of the whole industry. Recent global events and the critical importance of ESG shine a spotlight on wealth and asset managers and the role that they play in society. There is real motivation in the industry to step up to the plate and do their part.
Investors have a heightened awareness about where their investments are placed, and they are increasingly asking to see the impacts of their investments alongside financial returns. For sustainable finance, the die has been cast. Environmental, Social and Governance (ESG) and Responsible Investment is not merely an investment approach but a core part of your DNA – how you hire, operate and invest. It is your licence to operate and your opportunity to lead the industry rather than be an observer. With added pressure from their peers, and more importantly regulators, it is critical that businesses embed these criteria into their strategies and business model. Product strategy, investment process, investment technology, data architecture, marketing literature and distribution preferences all must quickly change.
However, a credible ESG strategy requires authenticity and must be aligned to the company’s values. It also must be focused. Managers should understand the ESG risks and opportunities unique to them, define where they can best have an impact and focus on executing against it. ESG is a broad topic so understanding where best to focus to make a material impact is critical. Those that don't will struggle to be able to communicate a coherent ESG strategy to investors, stakeholders and their people.
For the wealth and asset management industry, there is a critical opportunity and responsibility to use their significant buying power to drive real societal change, as well as support economic growth and activity in the broader economy. However, the approach shouldn’t just be about investment exclusion, but it should be about engagement and how to transform businesses and industries to be greener. There is a major paradigm shift happening in the industry. Organisations are realising their positioning and power to influence change, and that their purpose is to not only provide returns for investors, but to do so in a responsible and long-term way.
The industry has a privileged position, and alongside the beliefs of asset owners, wealth and asset managers can drive real change through the companies that they are invested into. Wealth and asset management is not just about making profit, it is about driving real societal impact and building a sustainable future.
Reach out to Jonathan Coates to discuss your ESG journey.
The squeeze on margins and ‘outside-in’ pressure means that managers need to not only optimise what they do, but also build scalability into their various operating models and differentiate themselves in order to survive. Institutional investors and allocators show continued preference for fewer, larger strategic investment/co-investment partners. In turn, achieving a scalable operating model(s) is not just about driving better operating margins, but it is also about successfully attracting and retaining the assets, as well as sourcing the best investment opportunities.
As assets under management in private assets ticks upwards at faster rates of growth than public assets, the number of traditional asset managers vying for talent and skills in private equity, infrastructure, real estate, and debt also grows. Whilst differentiation is certainly about sourcing the right deals at the right time and creating the appropriate client products and solutions around them, successful execution is fundamental. This requires the right governance, people, processes, technology platforms and data capabilities to maximise value from the opportunity. The so-called ‘wall of money’ in private assets needs clear end-to-end channels throughout the acquisition, onboarding, monetising, running and exit lifecycles. Moreover, the potential ‘retailification’ of alternatives to distribute to a wider range of investor types, will add to the scrutiny and the need for managers to fully understand the underlying assets they run.
Typical challenges arise when bringing together the public and private market worlds – gaps in skills or knowledge in the middle and back office, or lack of robust governance frameworks and technology/data capability, risks the successful outcome of these differentiation initiatives. In addition, leveraging alternative data sources and having better data-led insights is ever-more a ‘must-have’ in differentiated decision-making. A number of leading data analytics solutions have recently emerged, but firms often struggle with where and how to take the first step in deploying these facilitators to extract the maximum advantage to their investment and distribution lifecycle. Traditional asset managers and allocators expanding their asset class capabilities, in particular across the private assets landscape, have an exciting opportunity to create real value for their underlying investors and clients; a nimble, agile approach alongside strong skillsets and targeted operating models are pivotal to achieving successful outcomes.
Speak to Zeynep Meric-Smith to find out how to differentiate your business.
The concept of client centricity, while not new to the wealth and asset management industry, has certainly evolved from previous efforts purely applied to developing digital and front-end services for clients. Today, client centricity is considered as critical by every member of the ExCo – from the CFO and Heads of Distribution considering client profitability and behaviours influencing churn, to the CIO embracing a client-driven approach to co-creating tailored investment solutions.
Wealth and asset managers looking to differentiate themselves demonstrate a seamless cycle with continuous feedback that reflects an understanding of clients’ holistic goals. In addition, they have an ability to actively identify solutions and develop distinct products and services to remain market leading, while staying on the cutting edge of innovation.
Most have acknowledged the importance of the 360-degree client view to develop a multi-dimensional model of client engagement, purchasing behaviour, location, influence, churn and other factors – enabling the ability to run data experiments and deliver predictive next best actions.
This continues to be a work-in-progress, with mountains to climb in order to consolidate and analyse data, particularly across intermediaries and institutional clients, where the distribution layers limit transparency of the end investor, and true source of flows.
Personalisation and customisation are the holy grail, with opportunity to weave this into client facing portfolio tools, as well as digital distribution channels.
Increasingly, simply being a top performing house is no longer enough to win new customers, with newer demands for tailored services being central to pitches and RFPs.
Moving into the next phases of the ambition to achieve client centricity, managers are focusing on two key areas. Firstly, a new approach to considering client segmentations, moving away from simplistic, traditional segments to data-driven segmentation that develops client clusters based on similar patterns. Secondly, the deconstruction of the siloed operating model, and emergence of the integrated sales, client servicing and marketing organisation centred around client types will be critical in delivering a wholly client-centred experience.
Contact Ruby Paramanathan, who will be able to guide you through establishing and maintaining client centricity.
The pressure on profitability is making the need for strategic change in a different way to past endeavours more crucial. Technology and data will provide a vital competitive advantage – the emphasis is on smart and wise spends that will transform, rather than incremental spend to ‘keep moving’. Managers taking the approach of automation to release savings and recycle to differentiate are setting out a longer-term strategy, which focuses on AUM growth and the survival of the fittest.
Overall, asset managers have been the slow movers in the financial services industry – where other sectors have seen more revolutionary changes. Banks have previously invested on digitisation and automation to create scale and efficiencies. They have rapidly redirected focus to new digital propositions and services, given new market entrants are posing a competitive threat. A similar trend has descended on wealth and asset management – where focus has historically been on the demands of the front office and winning investment strategies, an ‘outside in’ approach is inevitable to ensure relevance and responsiveness. This, in turn, requires strides to be made in creating scalable processes, removing legacy and investing in plug-and-play FinTechs, which offer rapid innovation opportunities.
Technology will continue to play a key role in automating certain functions to allow employees to devote more time to higher value activities and the analysis of the many new datasets now available to improve decision making. The objective is to make value-add the whole focus of the workforce to result in improved ROI, higher client satisfaction and ultimately higher profits. Organisations that make the best use of partnerships and outsourcing will give themselves the capacity needed to focus on this workforce transformation.
Alongside technology, data is the twin success factor to achieving scalable transformation. Investing in data foundations is critical to enable a well-oiled machine that is fuelled continually by forward-looking insights.
Making the best of data falls to the five Vs: volume, velocity, variety, veracity and value. As more data becomes widely available, the competitive advantage will come in the interpretation of data and decisions made off the back of these insights.
To be successful on this journey, the tone needs to be set from the top, with the ExCo fully understanding and embracing technology and data, and reinforcing these as critical to a new future way of working.
Reach out to Rob Carter to discuss how to fast-track your firm’s digital transformation.