The asset management operating model: Keeping pace with industry and technology evolution

The need for asset managers to transform their operating and technology models

Read this article and learn about:

  • Key trends that are shaping the evolution of the asset management industry
  • The implications of these trends on the traditional operations and IT set-ups
  • The evolution of new requirements and standards particularly in data quality and systems controls
  • How asset managers are using a new and more systematic framework to adapt their traditional approaches to managing operating model and technology change
Paul Mawson, PwC Partner, Asset and Wealth Management
Paul Mawson, PwC Partner, Asset and Wealth Management

 

Ian Woodhouse, PwC Director, Asset and Wealth Management
Ian Woodhouse, PwC Director, Asset and Wealth Management

The asset management industry is going through a period of major change, which is providing significant challenges to the traditional operating, technology, and data platforms. The way forward is a more structured and disciplined business-led transformation, which focuses on simplification, standardization, and leverage, while also adopting a more integrated model to enable better quality data management.

PwC’s report ‘Asset Management 2020: A Brave New World’1 described an industry with a wealth of global opportunities, balanced against numerous short- and long-term challenges (now also including Brexit). A situation, which it needed to adapt to in order to remain relevant and reap the rewards of agility and bravery in a world where the rate of change seems to be ever accelerating.

When less needs to mean more

In this world of change, the challenge for every CEO and their leadership team is to work out how to achieve more with less. Almost every organization in the industry is battling against a trend of increasing cost and decreasing margins.

The way forward is a more structured and disciplined business-led transformation, which focuses on simplification, standardization, and leverage.

At a recent European asset management conference, a panel of leading chief executives agreed that they needed to become more client-centric offering more bespoke added-value client solutions whilst simplifying their overall offerings and reducing the cost of operating models. The assembled COOs looked suitably worried about how they might achieve this objective.

Meanwhile, the regulatory bodies around the world continue to increase the number of lenses through which they effect control. This in turn continues to make demands, which most organizations are responding to with tactical solutions, embedding additional costs and adding to the complexity of future change.

The Asset Management Operating Model: Keeping Pace with Industry and Technology Evolution

Past decisions – present constraints

Most companies are agreed that if they had a blank sheet of paper, they probably wouldn’t design what they have today, yet the starting point is the most fundamental constraint that most existing companies have.

So, how do you move forward and meet ever more complex client and regulatory needs, given the starting point isn’t quite what you’d like. Here again the chief executives shone a light on the path to the answer, which all could agree to: it’s all about business-led technology and data transformation.

…it’s all about business-led technology and data transformation.

Can IT and data move from problem to solution?

We live in a society today, where most people are used to the instant gratification of technology. The yardsticks we apply to our personal technology are often beyond that of our corporate technology. A gap, which leaves significant opportunity for the participants in the market today, or for disruptors.

However, in a FinTech world of blockchain, cloud, AI, big data, and many other exciting innovations, the existing reality for many firms is one of a highly complex legacy environment shaped by partial post-merger integration, underinvestment through the crisis, and a need to spend on regulatory compliance. A situation which makes it difficult to know where to start in order to avoid a costly white elephant and a repeat of the never ending ‘Data Warehouse’ project that still scars many of us in financial services IT today.

…the existing reality for many firms is one of a highly complex legacy environment shaped by partial post-merger integration, underinvestment through the crisis, and a need to spend on regulatory compliance.

Asset managers often find themselves caught in the middle of the value chain. Above them are two key stakeholders demanding ever more, their clients and the regulators, below them are often third-party providers, who can provide solutions, but who also bring their own process, data, technology, and integration challenges. Not surprisingly, many organizations are deciding to sort out the foundations of their businesses now and to look to how they can leverage FinTech off the back of this investment.

Emerging good practice is to simplify, standardize, and leverage technology and data

There has been a growing trend in the last few years to implement cross-asset class platforms to reduce the reliance on a fragmented best-of-breed architecture and to provide a more consistent set of capabilities to the front office. These front office capabilities provide a richer set of tools, but perhaps most importantly, a consistent set of definitions for core business processes and their associated data. The foundational data achieved can then be enriched with additional data from other sources to satisfy the additional stakeholder needs.

… a growing trend in the last few years to implement cross-asset class platforms to reduce the reliance on a fragmented best-of-breed architecture and to provide a more consistent set of capabilities to the front office.
Better data management can bring efficiencies to compliance and controls through de-duplication as, often, the same data is required to satisfy multiple regulators. Data can also be better harnessed to provide greater insight, research, and analysis of underlying risk exposures across multiple portfolios and funds to support good investment decisions and to meet suitability and investors requirements for more detailed and timely reporting.
Back

A more systematic approach to data management

Going forward, as opposed to more traditional business intelligence, big data techniques will allow asset managers to analyze data for patterns more quickly at much lower cost and to provide new value to institutional and retail investors across the client journey.

Achieving better data management requires a more systematic approach than in the past. It will take an enhanced data strategy, which should be informed by a data maturity assessment to identify where any key gaps are so that priorities can be identified. This should be accompanied by a greater focus on data governance around a more integrated model with a single source of data.

Leveraging FinTech

With the higher costs of tougher regulations such as suitability and MIFID II where evidencing assessment of investors investment goals, their risk appetite, propensity for loss, and their knowledge and experience is fast becoming the new standard, asset managers are having to embrace a combination of FinTech, digitalization, and better data management particularly in the front office and distribution areas. Several asset managers have moved to partner with FinTech companies or to buy them in order to extend distribution through adopting D2C or hybrid robo advisor models. In the middle and back office areas, several asset managers are also working with FinTech firms to embrace artificial intelligence, robotics and several are also exploring the potential of block chain.

The business and cultural challenges should not be underestimated as to get value out of FinTech requires embracing an environment of fast innovation, the need to fail to succeed and embrace creativity rather than stifling it through the traditional cultures of larger established asset managers.

Asset managers need to act now

It’s important to act now as many asset managers have a significant legacy to overcome with fragmented and inconsistent data, which is both complex and costly to manage. Additionally, both clients and regulators are demanding higher quality and timely data. Addressing this now improves efficiency and control, and also provides the required baseline to move to harness and leverage the new big data and analytics opportunities. Failure to address these issues in a timely way is likely to lead to a deterioration in operational cost and compliance performance. Not to forget the loss of information insight as a competitive advantage.

Advanced asset managers who are adopting the principles of simplification, standardization, and who are beginning to leverage digital and FinTech are achieving business benefits with initial savings of 10 to 20 percent.

Advanced asset managers who are adopting the principles of simplification, standardization, and who are beginning to leverage digital and FinTech are achieving business benefits with initial savings of 10 to 20 percent.

With multiple trends underway, it’s easy to underestimate or miss emerging challenges and opportunities and so an important starting point is to gain visibility of the impact of trends on your business and to know where you currently stand in terms of maturity in order to prioritize and focus on those areas which will be key to realizing future potential.

It will also be important that projects aiming to improve the operating model, technology, and data approach are business- as opposed to technology-led. Just as the transition from the current to future state must have robust program and change management support to align all stakeholders across the business, regulatory, risk, and technology areas to deliver sustainable results within the required timeframe.

Conclusion

With major industry changes underway, most asset managers are now reviewing and adapting their legacy technology and data environment to ensure that they can meet the challenges of increasing costs and decreasing margins. We can observe that they are on a journey to simplify, standardize, and leverage their technology and data platforms.

Done well, this approach cannot only provide a more advanced toolkit and superior data quality. It is this challenge to standardize and automate core processes, and gain leverage that is the key opportunity and key challenge faced by implementation teams.

About the authors

Paul Mawson, PwC Partner, Asset and Wealth Management

Paul has extensive experience with global asset managers providing advice on the selection of their service and systems providers and supporting them with the implementation of large-scale change.

Ian Woodhouse, PwC Director, Asset and Wealth Management

Ian has experience with asset and wealth managers where his expertise helps them to successfully assess their current position, focus on their target state, and determine their transition and change approach to better adapt to industry trends, achieve their growth and return potential, and meet compliance obligations. He is also a key contributor to PwC thought leadership reports on industry and competitive changes.

  1. http://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-management-2020-a-brave-new-world.html

 

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