While asset management firms are starting 2022 in a position of strength, the times — as Bob Dylan would say — are a’changing.
Despite the precariousness caused by a certain deadly virus that’s been doing the rounds, the industry hit double-digit growth during 2020 and 2021.
But, to paraphrase a well-worn investment disclaimer, these numbers aren’t a guarantee of future success. With mounting regulation, rapid technological change, and, most importantly, investors’ shifting attitudes and expectations, the products, tools, and approaches that firms have relied on for decades are no longer fit for purpose.
So what does the asset management firm of the future look like?
And how can you start preparing today so your firm can succeed in this ever-shifting landscape?
Putting change into perspective
When Accenture asked 250 asset management executives what the industry will look like in three years’ time, their response emphasised two main things.
Firstly, the asset management firm of the future is, if not digital-first, cloud-based, AI-operated, and much more responsive to clients’ digital needs.
Secondly, asset management firms must start being more inclusive and socially responsible, empowering investors through active investing and a more personalised service.
Given the current state of play most asset managers, for instance, think they aren’t meeting clients’ digital expectations. This transformation will require significant soul-searching and, according to Accenture, far-reaching changes in six key areas:
- Brand strategy
- Product strategy
- Sales and distribution
- Investment capabilities
- Investment operations
- Talent and culture
Here’s an in-depth look at each area, and its significance for asset management firms moving forward.
1. Who are you?
Brand purpose — the idea that businesses should stand for something besides profit — has polarised marketing pundits since Simon Sinek published Start With Why, the book that popularised the concept. But the asset management industry’s direction of travel shows investors do care about who firms are, what they stand for, and their impact on the world.
Over the past few years investors have been rebalancing their portfolios to make them more sustainable in record numbers.
The cynical may point to the fact that sustainable investments outperformed the market in 2020 as proof that profit, not ethics, is the main factor behind this shift. But even if that’s true, there’s no denying that a strong brand is a critical differentiator.
Unfortunately, while 97% of the asset management executives Accenture surveyed said a strong brand is important, the reality is that it’s often hard to distinguish one firm from another. That needs to change if asset management firms are to succeed moving forward.
‘Asset managers,’ Accenture argue, ‘should become more comfortable with intangibles… a brand story that involves ideas, concepts, accomplishments and aspirations.’
But strong branding doesn’t stop with ‘figuring out your why.’ You also need a plan for spreading the word, building long-term trust with customers, and measuring success, so you can iterate, improve, and enhance.
2. Walking the talk
Brand purpose is pointless if it isn’t aligned with how you operate. No customer would trust a firm that says it’s environmentally-conscious but invests in fossil fuels or other ethically-questionable businesses, for instance. ESG considerations must be part of the product strategy every step of the way — from proposal stage, and initial quantitative research, to risk metrics and reporting.
Firms also need to take three other developments into consideration when it comes to their product strategy:
There’s growing demand for customisation and a drift away from mutual funds towards more flexible instruments such as exchange-traded funds and direct indexing.
Customers don’t just want personalised products, they also want customised financial advice — an opportunity for firms to expand outside the investment arena and act as consultants and advisors to distributors.
Mind the blockchain
As blockchain technology becomes more mainstream, demand for tokenisation and alternative investments will continue to grow.
In 2019, the World Economic Forum predicted that as much as 10% of the world’s GDP could be stored in crypto-assets by 2025. Given the sensational year crypto-assets have just had, that prediction is looking ever more realistic.
Out with the old, in with the tech
The proliferation of — and demand for — software-as-a-service means there’s an opportunity for firms to start offering customer-facing apps and other tech products, as well as white-labelling.
Industry leaders have already started doing this. BlackRock, for instance, partnered with German firm Scalable Capital to enter the European robo-advisor market. Similarly, Charles Schwab have recently acquired Motif — so they can start offering personalisation capabilities to other firms.
3. Re-thinking sales and distribution
The way the industry does sales and distribution has long needed an overhaul. But the Covid-19 pandemic has made this more evident — and urgent — than ever, particularly for smaller firms.
As Deloitte note, ‘considering the pressure on small to medium-sized asset managers from deteriorating margins and increasing consolidation, the speed of transformation and the associated cost concerns may quickly become a matter of survival.‘
According to Accenture, firms can make their sales and distribution strategy more efficient and effective by implementing three key changes:
Quality over quantity
Accenture’s research suggests many advisors will be taking fewer meetings with wholesalers in 2022. That means the partnerships firms do have in place will be more important than ever.
To this end, Accenture recommend ensuring they ‘have the right level and richness of information about your products and how they fit into the portfolio so they can provide more relevant advice.‘
You should also make your strengths and competitive edge as clear as possible. Put simply, why should an advisor recommend your product, and not another firm’s?
Ramping up your digital strategy
Like advisors, investors are also becoming more selective. So, firms need to improve their direct-to-investor channels and make their unique value clear from the get go.
Direct-to-investor channels are more cost-effective. But, more importantly, they’re an opportunity to connect on an emotional level and build trust through hyper-relevant products and advice.
Deloitte put it this way:
‘Brands can connect with their end customers directly and develop meaningful relationships with them. They can use the data they collect to refine their products and offerings and better meet customers’ needs and demands. They can expand their reach across the country or around the world and sell goods more profitably. And they can do it without making major investments in infrastructure or establishing vendor agreements with local retailers.‘
Aggregate. Aggregate. And then aggregate some more
It goes without saying, but the quality of personalisation rests on the quality of inputs it’s based on. So it’s fundamental that firms have enough data points to make accurate predictions.
This is an area where Fundipedia can help. Our platform can collect, verify, and store all static and dynamic data — including industry data, data from third parties like administrators and transfer agents, as well as your internal data — and makes it easy for you to access it any time, from one place.
4. Unlocking the power of AI
When PwC surveyed US-based asset managers in 2021, only 7% said they haven’t looked at using AI. 33% had started implementing AI in a number of limited use cases, a further 21% were looking to scale their programmes, and 25% had adopted AI-powered processes across their organisation.
Over the next few years, it’s likely AI will become even more widespread, including in the investment decision-making process across all asset-classes. And firms that do it well will have a significant competitive advantage — research shows AI and other advanced technologies can boost revenue by as much as 30%.
At the same time, alternative data will also grow in importance: for more accurate predictive analysis, more comprehensive product and investor due diligence, easier compliance, and even better insights into the firm’s internal performance.
At Fundipedia, we’ve developed an AI-powered dashboard that allows you to build an advanced, comprehensive data model, identify trends and make forecasts, and, most importantly, ensure your data is accurate every step of the way.
Our First Responder feature identifies inaccuracies and automatically alerts the person best-placed to fix the issue. You can also schedule regular reconciliations, so all your data stays accurate, even after it goes downstream.
5. Putting investors front and centre
With demand for hyper-personalised investment products and customised advice on the rise, Accenture predict firms are going to have to rethink their operations strategies to make them more user-friendly and customer-centric.
‘Operations leaders,’ they say, will have to step ‘through the client onboarding process to understand the opportunities for improvement and differentiation.’ And as investors — particularly institutional ones — become more and more interested in firms’ operational resilience, back-office functions may start having more frequent customer-facing interactions.
Here again, data and technology will have a critical role in helping firms meet customers’ continually shifting expectations and innovating. And that means they need to partner with a good third-party technology provider and invest in a data management platform fit for the 21st century.
As Accenture put it, firms can’t be truly customer-centric if they’re relying on ‘a 20-year-old data warehouse that only has some of the data, for some of the positions, for some of the users.‘
6. You are your people
Before 2020, working from home was a sought-after but often elusive perk. But in 2022 — two years into curbs on in-person interactions aimed at slowing the Covid-19 pandemic — only 25% of asset management firm employees want to return to the office full-time.
Terabytes have been written about the challenges of remote and hybrid working and how firms need to adapt — ensuring compliance, on-the-job learning, and fostering team spirit, just to name a few.
But, the new normal — to borrow another Covid-19 cliché — has also created opportunities for firms.
Downsizing or eliminating the office altogether is a significant cost saver.
More to the point, if location isn’t a factor, firms can cast their net wider when hiring and benefit from a larger talent pool.
As it happens, the ability to widen the talent pool couldn’t have come at a better time.
While staff with investment and market knowledge will remain the cornerstone of asset management firms’ workforce, people skilled in cloud computing, data analytics, and AI, will have an increasingly important role. So firms will have to upskill staff or hire new talent.
What will asset management firms look like in 2025?
The next three years are going to bring about sweeping changes to the asset management industry. Firms need to get a better sense of who they are, upskill their workforce, and, most importantly, invest in technologies that help them respond quickly as the market evolves.
If that sounds like a tall order, it’s because it is.
But challenges also create new opportunities. It’s critical to start preparing for tomorrow’s challenges today if you want to be in a position to catch the wave.
At Fundipedia, we’ve created a comprehensive data management platform that helps you take control of your data, simplify your operations, and future-proof your business.
Want to learn more about how we can help you succeed in 2022 and beyond?