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When the ground beneath your feet is shifting, do you stand still or leap forward?

A view on the new asset management global operating model

When Heraclitus philosophized that change is the only constant, he certainly never envisioned the disruption overtaking today's global asset management industry.

Since rebounding from the events of 2008, the pace of change has accelerated across the industry, driven by a confluence of market forces and megatrends, including:

  • A new wave of investor demands
  • Technology innovations
  • A sustained flow of assets under management (AUM) from active to passive funds
  • Increasing fee pressures from stakeholders across the ecosystem

For wealth and asset managers, these forces have necessitated bold action, which many firms are taking now. Those firms able to define the optimal product, pricing, distribution and service strategy and move quickly to transform their operating model will remain competitive. Speed and agility are key, both during transformation and as attributes of new and sustainable operating models.

To thrive in this global $70 trillion industry, firms must have an infrastructure designed for ongoing change. Simply being responsive to change will not be enough to succeed in the future.

The change now taking place is a complete shift from past eras of cyclical change. It is happening at a faster pace and is more profound and structural than before. Looking to 2020 and beyond, the wave of change will be sustained over the long term and permanently reshape the wealth and asset management landscape.

As we look forward across the next five years, operating margins across all firms will continue to face pressure. To remain competitive, address the powerful forces described below and harness the power of change, asset managers need to embark on unprecedented strategic transformation programs, addressing multiple dimensions of the business:

  • Technology platforms
  • Intermediary relationships
  • Business alliances
  • Product innovation
  • Sources of talent
  • Client engagement
  • Brand management

This article outlines the actions leading firms are currently undertaking, or assessing, to redesign their operating models for the future.

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EY - When the ground beneath your feet is shifting, do you stand still or leap forward?

To thrive in this global $70 trillion industry, firms must have an infrastructure designed for ongoing change. Simply being responsive to change will not be enough to succeed in the future.

Asset managers must address every core function of the enterprise if they are to successfully transform.

Distribution, sales and marketing

Distribution operating models have not been immune to technology-driven disruption. Leading firms are redesigning their distribution organizations and adopting technology to address the rapid shifts in product demand and service levels across institutional, retail direct and intermediary channels.

From a product perspective, firms are adopting life cycle views and engaging resources from investments, operations, finance, risk, compliance and distribution to thoughtfully assess the end-to-end impact and cost of new product or mandates.

Front office

Nowhere has the need for differentiated talent been more evident than in the front office. Historically, product-led growth through innovation has been sufficient to drive net AUM growth. Whether a firm relied mainly on index, active or smart beta products, the infrastructure for product innovation and investment management has typically included:

  • Specialty research
  • Asset-class-based portfolio and order management systems
  • Many different Excel-based analytics and models
  • A proliferation of market data
  • Investment risk and compliance monitoring contemporaneous with the investment decision or trade order

This front office operating model has gradually evolved, with infrastructure and personnel costs rarely challenged.

Middle office

Asset managers have clearly embraced data as a highly valued asset and embraced the stewardship of data, once it has been received from back-office platforms, for reporting to portfolio managers, finance, risk, compliance, clients and regulators.

As such, the middle office has traditionally been a high-cost function spanning manual processes and disparate applications for trade operations, post-trade compliance, performance reporting, position and cash reconciliation and reporting, corporate action verification, broker reconciliation and master data management.

Back office

Scale and complexity issues dominate the back office. The technology investment required to support top-tier firms as they approach or breach the trillion-dollar AUM mark — with hundreds of net asset values (NAVS) to strike and often thousands of separate accounts to support – forces a strategic decision on sourcing.

Contacts

EY - Alex Birkin

Alex Birkin
Partner, Global Wealth & Asset Management Advisory Leader

   

EY - Lesley Keefe

Lesley Keefe
Executive Director, Americas Asset Management Advisory Leader

   

EY - Reema Kotecha

Reema Kotecha
Senior Manager, Wealth & Asset Management Advisory