A new report from Deloitte, ‘Survival of the Fittest: Defining Future Leaders in Asset Management’ has outlined five bold changes asset management groups will need to make in order to remain competitive.
The recommendations are a result of the prediction that the operating environment will continue to pose challenges to asset managers in the form of; slowing organic growth, falling annual revenue and a drop in median profit margins.
The report attributes these challenges to four ‘catalysts’ for industry change:
New buyer demands
Scepticism regarding active management
With these challenges in mind, we summarise the report’s suggested changes that asset managers can make to remain competitive.
Optimise resource allocations
Growth-orientated capital allocation is predicted to become a key strategy for asset management businesses worldwide, according to the report.
The report states that asset managers tend to manage their firms like ‘well-diversified’ portfolios rather than a focussed set of business strategies. But reallocating focus from ‘legacy’ areas of the business to invest in growth initiatives is an effective tactic used by the most competitive firms, according to the study.
According to the study, the most competitive asset managers focus investment and management time on business lines that significantly impact the future value of the business and competitive advantage. This can mean diverting resource from areas of the business that do not show strong organic growth potential or that lack the ability to compete.
The report states that operational efficiency will separate more and less successful rivals, as efficient firms will have more capital to reinvest in growth and those who are less effectual will be stuck cutting essential services.
Firms with bottom-decile operating efficiency need to expand nearly five times faster than the industry in order to maintain current operating margins, while their more efficient counterparts have built themselves a better starting point for growth, said the study.
The report identifies data infrastructure as crucial to streamlining operations. Here at FE, we recognise the struggles many asset managers face with regards to data management and we know how effective data management can help to streamline a business's operating efficiency.
Find out more about our data management capabilities, such as FE Precision+ Dissemination.
Differentiate your investment capabilities
The report predicts that a high portion of inflows over the next five years will focus on outcome-orientated portfolios such as multi-asset and multi-strategy products. Managers will therefore need to quickly turn their focus on differentiating their abilities by matching investor-driven product demands.
In addition, the report asserts that the most effective asset managers will have a data-led method of identifying and securing new opportunities for product development, and accept few excuses for maintaining slow growing and less relevant ‘legacy’ products.
The report finds human-driven distribution of asset management products to be ’impactful, but inconsistent in a world of just-in-time client demands.’ The issue for asset managers, as outlined in the report, is that sales teams are ill equipped to deal with large numbers of customers with varying sales potential and different sales cycles.
Technology should therefore be used to improve the customer experience.
There are many ways in which this can manifest, according to the report:
Analysing client data to build detailed client segments that can be used for predictive analytics
Developing digital strategies, including social media and video, to promote multi-channel marketing campaigns customised for target segments
Developing an E-CRM programme to automate key functions of the sales desk
Creating tools for advisers and end-users, allowing them to integrate manager insights at important decision points
Promoting more consistent and customised interactions with advisers or end-users through multiple media, including mobile and social
Websites, factsheets fund centres – all of these tools are part of the digital customer’s journey and so should be optimised. FE’s Precision+ Digital solutions for asset managers can help you do this.
Build a trustworthy brand for consumers
The report predicts that as investors demand more customised investment outcomes based on their individual needs, customer satisfaction will become: ‘just as important as benchmark relative performance’. Brand will therefore have a more prominent role in driving decisions for consumers.
While results will always remain critical to brand value, the report finds several other components that are vital in creating a consumer-orientated brand. As well as trust and transparency, the report highlights reliable executive management, fair pricing, shared interests with the consumer and innovation as important in cementing a successful brand.
Whilst there are significant challenges facing asset management, it seems that there are also genuine changes firms can make to help them remain competitive – albeit these changes cannot be made overnight.
For more information on how FE’s services can help streamline your data management and boost your digital marketing efforts, contact us now.