Read this article and learn about:
- Transforming the operating model through standardization, simplification, and integration
- Utilizing recent technology-based innovations to enhance the operating model
- Data as a source of competitive advantage
About the author:
Alex Birkin, Partner, EMEIA Industry Leader and Global Advisory Leader, Wealth & Asset Management, EY
It has often been said and written that the asset management industry is about to experience significant change. The triggers for these comments have typically come from macroeconomic events, significant market volatility, or regulation. We saw this most recently following the aftermath of the 2008 credit crisis. On reflection, nonetheless, the industry often continues fundamentally unchanged upon these announcements - or at best having evolved around the edges. However, things might really be changing this time. So how should asset managers respond?
Comments about significant change are increasing in frequency and volume once again. Interestingly, this time these comments are based on the disruption new technologies – or “fintech” – could bring. The expected so-called disruption may result from new entrants in the industry raising the bar on customer experience and efficiency by leveraging a different technology-based operating model. Alternatively, it may come from existing players adopting the new technology to enhance their current operating model by combining it with their brand, client relationships, and investment experience. Either way, many believe that this time significant change could really be on its way and some argue, not a moment too soon.
Current market trends triggering change and demanding asset managers to respond
Innovation occurs as a result of unmet or changing market needs. Therefore, the current market context is important. Despite the market volatility in the first quarter of 2016, the industry is seeing operating margins returning to pre-crisis levels, which continue to be the envy of other financial services sectors. However, much of this improved performance is a reflection of the general rise in financial markets over that period rather than through significant improvements in operating efficiency. However, the industry is also facing headwinds; from the shifting distribution landscape across Europe, an increased focus on fee transparency, and the unbundling of costs adding further downward pressure on margins, with both regulators and end-investors questioning the ‘value for money’ provided by active management.
Furthermore, the digital transformation occurring in other sectors is raising the bar on the level of customer experience expected to be provided also by the asset management industry, particularly for those organizations who are looking to have a direct relationship with their end investors.
Industry response to market trends
The industry is responding to these changes in a number of ways, including;
- evolving the distribution model to incorporate a component of ‘direct to consumer’,
- moving up the ‘value chain’ to offer investment advice,
- developing investment solutions as well as products unpinned by active and passive management, and
- utilizing a broader range of alternative asset classes (e.g. infrastructure, real estate, non-listed assets).
Many of these responses require a corresponding change to the asset manager’s operating model. Furthermore, asset managers are asking whether their operating model can be a source of competitive advantage.
The industry’s ability to evolve the operating model sufficiently to address these challenges may be enhanced with the emergence of a number of recent technology-based innovations: robo-advice, big data analytics, robotics, and blockchain. Not all of these will be appropriate for every organization but those that can embrace these developments may be able to expand into new client segments and services, whilst improving efficiency.
The industry’s ability to evolve the operating model sufficiently to address these challenges may be enhanced with the emergence of a number of recent technology-based innovations: robo-advice, big data analytics, robotics, and blockchain.Alex Birkin, Partner, EMEIA Industry Leader and Global Advisory Leader, Wealth & Asset Management, EY
A global operating model and the need for transformation
The ‘operating model’ is an overused and ill-defined concept. At EY, we define the operating model as the cohesion between eight core components outlined in Diagram 1.
DIAGRAM 1: Global operating model. Source: EY.
Many asset managers have already embarked upon the journey to ‘globalize’ their operating model to improve efficiency, consistency, and control. This globalization of the operating model is occurring through ‘standardization’ and ‘centralization’.