When your line of work is dependent on balancing acceptable levels of risk and making informed decisions to ensure your clients are using their assets effectively, having a robust operating model that supports you to deliver value to your clients, manage your operations, and adapt to change is critically important. With the asset management industry now at a crucial pivot point, the need for a well-designed operating model that scales with the business—and plays a central role in future-proofing asset management—is more important than ever.
But, with our survey produced in collaboration with Amundi Technology, revealing 62% of leaders reporting their operating models don’t fully support their future business needs. It’s clear there are some firms who need to cast their focus on future-proofing their business. In doing so, businesses can better, and more efficiently, adapt in the future. Here, we will explore what’s driving changes in the asset management industry and share future-proofing strategies to give you an edge in the market.
The 4 forces reshaping the industry
Margins are falling, market activity is rapidly increasing, investor needs are changing, and there are rising regulatory and cost pressures to contend with—and that’s just the tip of the iceberg! The asset management industry is facing many challenges, but there are four factors that are integral to the current reshaping of the industry:
1. Product innovation
Product innovation and changing client needs are driving growth already. This is something we foresee continuing, particularly where active Exchange-Traded Funds (ETFs) and ESG products are concerned. Similarly, as regulatory changes continue to evolve, there’s suggestion this will democratise access.
We’re also starting to see a much larger focus on portfolio diversification, especially towards private markets—and this is something we expect will continue on a significant scale. In addition, pension funds will be looking for enhanced returns. So, there’s likely to be greater demand for asset managers that can offer bespoke, multi-asset, and alternative solutions and toward higher-risk, higher-return asset strategies. All of this will drastically increase data complexity, the divergence of operating models and admin requirements, therefore impacting future operating models.
2. Technology as a disruptor
Technology is already advancing at a rapid rate. We predict this will continue to drive change in the asset management industry. With artificial intelligence (AI) and machine learning (ML) being increasingly used already throughout the operating model, these technologies are only set to advance. Therefore they will play an increasingly important role in simplifying business challenges and tooling. Similarly, despite blockchain and tokenisation still being in their infancy in the asset management space, we anticipate they will continue to be developed and adopted. As will digital assets and robotic process automation (RPA).
For these advanced technologies to be properly adopted, data will hold the key. This means firms will need to ensure they have high-quality data that can be efficiently and effectively handled and used by these technologies, and that data is well governed.
3. Digitalisation
As we’ve further entered the digital age, and seen the value that digitisation can bring to a business, it’s perhaps unsurprising to suggest this will be another driver of change in the asset management industry in the future. By taking complex, laborious processes and transforming them into something simple and automated, firms can continue to reinvent the wheel and stay ahead of the competitive asset management market.
But digitalisation can only thrive as much as your existing processes and resources will allow it to. So, future-proofing the operating model will include having the right, innovative technology solutions and well-governed data to support digitalisation.
4. Consolidation
Consolidation will allow firms to achieve scale, which will be key to their future growth. This will likely take the form of mergers and acquisitions, as well as vertical consolidation of channels.
Firms’ ability to identify opportunities for consolidation and achieve synergies will require simplification of operating models to reduce duplications. Therefore, costs and fragmentation will become increasingly important in the future as this shift occurs.
The operating model gap
With just 3% of firms reporting that their operating model can fully support their future needs, it’s clear there is some room for improvement when it comes to how (or if!) firms are future-proofing their infrastructure.
Without doing so, there’s no doubt firms will feel the pressure on some of their major processes. However, there are challenges firms may find themselves faced with when they try to work on their operating model. For example:
- Data governance: Firms must manage vast amounts of sensitive client and investment data across jurisdictions. Without automated compliance solutions, this can prove incredibly difficult to manage.
- Digitalisation: Embracing digital tools while maintaining operational stability takes some work, and legacy systems are difficult to modernise or integrate.
- Global operations: Operating across multiple markets, time zones, and regulatory environments can prove tricky to manage.
While these challenges are poignant, the cost of inaction when it comes to future-proofing can be detrimental to asset management firms. This can result in inefficiencies, lost opportunities, and rising complexity further down the line.
Outsourcing: A strategic lever
With 70% of firms reporting they have a strategy to outsource over the next 2–3 years, the usefulness of outsourcing as a tool to future-proof operating models shouldn’t be overlooked. In particular, firms will be looking to outsource middle office arrangements from which they have already received a return on investment , as well as investment and performance reporting, and client reporting functions.
The benefits of outsourcing include:
- Scalability: Firms can easily scale operations up or down based on market conditions or business growth. This ultimately supports global expansion without the need to build local infrastructure.
- Cost reduction: By outsourcing non-core functions like fund admin, and IT, firms can lower their operational costs. Plus, this reduces the need for in-house infrastructure and staffing, so these costs will also be lower.
- Focus on core competencies: Outsourcing frees up internal resources for innovation and value-added activities, and allows firms to concentrate on key tasks like their investment strategy, client relationships, and growth.
By outsourcing some of their lower-level functions, asset management firms can free up their time, while future-proofing their operating model—it’s a win-win!
4 strategies to future-proof your operating model
There are four main strategies we suggest for a firm looking to future-proof their operating models and grow their bottom line. These are:
1. Simplifying systems
By simplifying the systems you currently rely on, your firm will benefit from streamlined operations, and cost reductions, to boost your bottom line. Firms can expect to:
- Eliminate redundant processes and systems
- Increase efficiency by reducing complexity and freeing up resources to focus on high-value tasks
- Enhance agility with fewer systems to manage
2. Rationalising providers
Rationalising outsourced providers can support bottom line growth by streamlining processes, reducing costs, and enhancing service quality. This happens through:
- Cost efficiency: Consolidation can lead to volume discounts, reduced management overheads and lower transaction costs.
- Improved provider performance: Having fewer providers allows firms to build stronger, more strategic partnerships, and therefore, higher quality services.
- Streamlined management of smaller provider set: Simplifying oversight, performance monitoring, and contract negotiations, reducing the time needed for admin.
- Enhanced innovation: Deeper, more focused relationships as providers can tailor their solutions to a firm’s specific needs, driving profitability.
- Improved risk mitigation: Fewer providers mean clearer accountability and improved risk management, ensuring business continuity.
3. Focusing on clients and products
Asset management firms are bearing the weight of challenges like fee compression, the cost of innovation, and the ever-increasing costs of operating and IT. By focusing on products, the market, and clients, firms can better align their offerings with investors’ needs and market demands. In doing so, businesses open themselves up to a host of benefits, including:
- Increased differentiation: By creating offerings that stand out in quality and value by innovating and refining products, firms can differentiate themselves from the industry’s tough competition.
- Enhanced agility: By staying up to date with changing market trends and competitor movements, firms can better anticipate changes, seize opportunities and adjust as necessary.
- Strengthened relationships: Adopting a client-centric approach through tailored solutions and personalised service builds long-term relationships, reducing acquisition costs and boosting revenue along the way.
- Stronger decision-making: When product development, market insights, and client feedback are woven into the decision-making process, there’s potential for continuous improvement and agile responses. This leads to sustainable growth and operational efficiency.
4. Outsourcing non-core functions
Relying on outsourcing partners to help manage your routine tasks can have a positive financial and operational impact. These partners can help:
- Reduce labour, technology, and operational expenses which lower overhead costs and improve profit margins.
- Provide access to cutting-edge technologies and industry best practices that enhance efficiency and quality without incurring in-house development costs.
- Enable firms to quickly scale operations up or down depending on market demand, avoiding in-house expansion and the associated capital investments.
- Increase focus on core competencies to concentrate on strategic initiatives and key business activities, leading to improved innovation.
- Accelerate project timelines and provide quicker responses to market opportunities, driving revenue growth.
Future-proofing your operating model isn’t a one-and-done exercise. It’s something you’ll continuously need to work on and a mindset you’ll need to adapt. Those who make the effort to become and stay agile will thrive. While those who don’t, risk falling behind. So, don’t let future-proofing fall to the bottom of your to-do list.
Want to find out more about getting ahead and embracing change? Our Asset and Wealth Management team are experts in business models, operations and client service design that will help you thrive now and in the future. Contact us today to get started.
