The Asset and Wealth Management industry has experienced very favourable tail winds since the financial crisis
- Profit pools have drastically moved from the sell-side to the buy-side and the ‘middleware’-side (exchanges, tech and data providers, asset servicers).
- Multiple forces have been behind this trend: elevated asset levels (bull market), reduced volatility, deleveraging, activities moving off banks to new players, increased price transparency etc.
- At the same time, the competitive boundaries of the industry have been shifting with exchanges offering research, custodians and investment firms offering portfolio technology and the buy-side encroaching into bank’s traditional territory through direct lending propositions
The industry is now ripe for re-engineering and transformation
- Fee pressure will continue as a result of digitalisation and the move to passive
- As asset levels decrease, deteriorating cost/income ratios will fuel substantial shareholder pressure for more efficient operating models
- Whilst the impact of regulation on operating model should have been profound, firms have tinkled at the edges rather than use the opportunity to re-invent themselves
- Net result – an overhang of change of which the need will be accentuated by the next crisis
There is no magic bullet – but this time it’s different…
- The responses that firms will require to deploy are no magic – strategic re-focusing, optimisation of the operating model, cost cutting, M&A
- The difference however is that none of these will work this time around they are not simulataneously embracing the very forces that are challenging the status quo. This means
- A rethinking of the enterprise value creation system towards its core and the embracing of the open architecture model to access non differentiating capabilities at a lower cost This may include much greater collaboration with competitors, and the pooling of resources in non value adding areas
- A fundamental re-thinking of the investment process towards a base construction layer that will be more automated, systematic and quantitative and a personalisation layer that will allow the winning firms to say ‘we are different’ – be it through proprietary ESG models, usage of alternative data, or the genuine application of an own research process and philosophy.
- The launch of new pricing models levelling the playing field to take away the seeming advantage of low-cost propositions
- The restructuring of the firm’s ‘guts’ (the data mess) to finally allow the power of digital strategy to emerge
- The embracing of new technologies to offer a more customer centric as well as more efficient set of value propositions
We will publish a series of papers on these very themes over the next months – stay tuned and visit us regularly