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Five trends which will 'discomfort' fund managers

German research study highlights how profitability and relevance can be retained.

The discomfort zone

German research group Zeb has published a report into the future of the European asset management industry.

At its heart, the Morningstar data-backed report indicates a series of significant challenges for the industry as a whole.

Here, we have highlighted five of the most pressing trends that asset management firms need to stay on top of to both prosper and stay relevant.

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The discomfort zone

German research group Zeb has published a report into the future of the European asset management industry.

At its heart, the Morningstar data-backed report indicates a series of significant challenges for the industry as a whole.

Here, we have highlighted five of the most pressing trends that asset management firms need to stay on top of to both prosper and stay relevant.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

#1 Define your strategy

The collapse of the mid-sized player means companies need to either focus on economies of scale or reshaping their business models to remain relevant. This would see companies either become one-stop shops for investors or offer superior quality strategies.

‘Within this context, asset managers need to be clear on their product mix strategy. Does their market positioning and client focus require them to be a one-stop shop which has to have products across all asset classes, investment philosophies, strategies and vehicles? It needs to be clear within their overall strategy what this diversity means in terms of revenue profile and production efficiency.’

Recommendations

  • ‘Smart passive”: offering passive or semi-passive strategies, creating low-cost basic products
  • Compete with passive players: focus on specific asset classes or a specific investment strategy
  • Avoid competition with passive players: focus instead on niches that are not suitable for passive management in the first place, such as illiquid segments
  • Re-define performance: operate as a solution provider where performance is defined more broadly as the delivery of a high-quality overall service

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#2 Sales in focus

The role of distribution and sales has never been more important, as attracting new clients will become as important as retaining existing ones. This will mean a much clearer focus on who is being targeted and with what. The report said ‘integrated sales management’ will become key.

The report added that many traditional asset managers struggle to grasp changing client mind sets, especially when it comes to technology and digital-based investing. This means more work has to be done to ensure access is made easier on digital platforms for all clients.

Recommendations

  • Digital emphasis: while institutional investors still favour face-to-face discussion, broader investors are increasingly digital
  • Sales in step: on distribution, the actual sales side of asset managers must be better when it comes to how they use tech internally
  • Changing sales behaviour: an implementation and coaching concept is needed that focuses on the individual competences of the client managers/front office

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#3 Review pricing

A hot topic in asset management at the moment, given weak, long-term performance and high costs. This, the report said, should see prices become increasingly less correlated with the wider market performance and more focused on value-for-money.

Performance-based investing is likely to become more commonplace, which will mean pricing principles – the foundations of their pricing plans – having to be updated as well.

Recommendations

  • Dynamism: not just in pricing models but developing services that truly add value
  • Tie with tech: as with the previous point, app-based investing or other formats can make pricing clearer or create cost savings
  • Cut your cloth: tailoring pricing models is another potential benefit, the differentiation of long-term behaviour can be a guiding aspect
  • Show your hand: as BlackRock did with Aladdin, don’t be afraid to share internal capabilities with clients

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#4 Cost-cutting

Profitability of asset managers is in steady decline and action is needed. Current cost levels are simply not sustainable and so, the report said, all aspects of cost and spending need to be explored. With asset management dependent on a high-level of repetitive actions, tech can fill in for more process-based work.

Recommendations

  • Ensuring suitability: the cost of not having up-to-date IT equipment is staggering, so tech infrastructure cannot be under-estimated

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#5 Data dominance

The growth and growth of data means digital opportunities can be better informed than ever before, which can improve the efficiency and speed of asset managers, as well as the customer experience. However, many asset managers are, it is argued, still in the set-up phase, so more work needs to be done. Asset managers need to focus on achieving fast, flexible and efficient data management as a result.

Recommendations

  • Defining of a clear data strategy and roadmap
  • Setting up of a compelling data governance
  • Systematic addressing of data quality issues
  • Improvement of the typically historically grown, scattered legacy IT architecture, which often hinders automated E2E data flows.

 

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