Asset management has always been partly about managing risk, but as we approach the new year, the marketplace seems riskier than ever: A tumultuous 2020 brought with it a pandemic, a slowing economy, natural disasters and nearly unprecedented political and social upheaval. Within the industry itself, competition has been aggressive, regulations have grown even more complex and the technology landscape has further altered the nature of competition. Is your firm ready for a bumpy ride—though with plenty of opportunity—in 2021?
Given this year’s disruptions, what should be top of mind for asset managers as they look to the new year? Here are five strategic enablers to help you refine your 2021 strategy.
1. Enable sustainable cost reduction
In the past, some firms have looked at cost reduction as a “one and done” program—as in, “Let’s go find 20 percent cost savings.” But the situation is far more serious and could have broader implications. Accenture analysis has found that year-over-year costs continue to eclipse revenue growth. That means that firms should establish a framework and a culture that ensures that they continuously tune process, technology and culture to optimize their cost model and return on investment.
Year-over-year revenue and cost growth in % (2019/2018)
Companies can work toward cost structure transformation using different levers such as:
- Artificial intelligence: Start to create a foundation of applied intelligence that can expand in capability as you move to solve the next problem set. For example, AI could be an emerging asset to enhance proactive risk management practices, especially by infusing predictive metrics that lead to cost avoidance.
- Shared services: A new imperative for shared services is to move beyond just standardizing and centralizing, but asking instead how one could further regiment and globalize these services. Firms should ensure that what they’re building allows them to support the requirements of different geographies, subsidiaries and/or various product types.
- Operations and technology modernization: Design a more efficient service delivery model, enabled by tools and assets that could help differentiate your offerings, such as real-time analytics and insights, as well as intelligent operations.
2. Embrace new forms of product innovation
The future of product development in asset management will be rooted in the ability to anticipate the needs of retail and institutional clients to create a more personalized set of products—essentially a benchmark created specifically for them. Today, it may be far too expensive to manage that type of structure, but technology could help enable this level of personalization in a scaled manner in the future, and managers should be taking steps to lay the foundation.
Take a fresh look at your offering and product portfolios:
- Truly understand and measure what products are driving your profitability and use that data to prioritize your product roadmap and capital investments. Firms could differentiate themselves by rationalizing their product mix based on concrete results and a forward-looking strategy.
- Examine your portfolios in terms of purpose, social responsibility and sustainability, especially as Millennial and Gen Z investors wrestle with striking a balance between performance and investing responsibly. It’s getting much harder to justify the trade-off between sustainability and financial performance.
3. Improve the agility of your infrastructure
As we wrote in last year’s “Trends” report, operating model transformation is essential for success in the asset management industry. Today, though, that transformation is especially focused on agility in the way you run your business. How can you get your business and technology talent working with your product and marketing teams to get products to market faster? In the past, it was acceptable if innovations and the subsequent value associated were delivered in two to three years. Now firms need to be able to deliver value almost immediately, whether it is via an acquisition, new product launch or large transformation initiative. Delivering frequent incremental value will be core to any strategy.
Iconic Silicon Valley players mastered the digital playbook, and it’s time for the buy side to borrow a page in order to write its own story about the “art of the possible”.
- Build flexibility into your technology architecture and development approach. Think about evolving your operating model in harmony with the delivery of new capabilities and be willing to change ways of working to enable incremental delivery of value, rather than just focusing on the big advances.
- Choose providers who have an agility mindset, whether from an asset servicing or a platform perspective. You want partners who understand how quickly they will need to pivot and who have the infrastructure to continue to deliver high-quality capabilities in this new environment. Strategic partners could also co-develop their product roadmaps with you to ensure close alignment with your own growth strategies.
4. Enable advanced technologies with a stronger data foundation
With technology, there’s always excitement about the “shiny objects” on the horizon, such as analytical tools that can extract insights from both structured and unstructured data. But before you can fully take advantage of those powerful innovations, you need to get your overall data management architecture right. A firm’s data foundation is critical to facilitating data-powered business use cases and realizing tangible business value.
For asset management firms, the ability to use emerging technologies like AI, advanced analytics and machine learning at scale—along with harnessing new sources of data—is key to driving innovation, growth and increased efficiency.
- Pursue analytics more aggressively. According to cross-industry Forrester research, between 60 and 73 percent of all data within an enterprise goes unused for analytics. This is clearly a missed opportunity. Analytics technologies and capabilities could allow asset managers to access previously unattainable data sets, helping them to feed their analytics and research platform to experiment and validate investment ideas, recommendations and decisions.
- Use machine learning to help clean up data by conforming and normalizing it. Machine learning can help you look at how you’re applying a rule to a certain data element. Then the application can go out and highlight what it thinks are other examples of that data that may have been inconsistently labeled.
- Leverage artificial intelligence to enhance the investment decision process by acting within parameters designed to identify buy/sell opportunities and populate trade orders within order management systems based on criteria that align with the investment strategy of the portfolio. With a strong data strategy and architecture in place, Accenture research shows that firms could adopt a comprehensive range of AI solutions across the asset management lifecycle and could achieve an uplift of up to 300 basis points (bps). Additionally, our latest research also found that the use of AI is becoming widespread with 85% of asset managers actively applying analytics and AI in their investment process.
The power of analytics and AI
5. Create a transformation culture
Asset management executives are under pressure to accelerate the pace of change within the business while also infusing a change mindset into all aspects of their culture, including both technology and the business. This mindset goes beyond program delivery and into areas such as how people are hired, trained and rewarded, and how they collaborate with vendors and partners.
Continuous change is not going away; it is our new normal. In light of that, asset managers should:
- Support continuous learning. Provide the workforce with an ongoing, collaborative, highly flexible and personalized learning environment. Ensure your teams appreciate that re-skilling is not optional. Create a culture of self-directed, continuous learning that empowers people to develop the new skills and capabilities they need to thrive in a changing world.
- Help workers reinvent themselves. Asset managers should be thinking much more about creating a culture that embraces change and supports people as they transition to new roles. In fact, they should be thinking about how to help people reinvent themselves every two to three years. The leading organizations in 2021 will be those that act now to reinvent how they allocate tasks, structure job roles, augment workers’ creativity and expertise with technology and develop the skills of their people for the digital age.
2020 has been challenging in many ways. The recent development of COVID-19 vaccines offers hope that organizations—especially the workforce and workplace—could return to a semblance of pre-pandemic normalcy. Yet 2021 is still likely to bring some rough patches. Given this uncertainty, it is vital that asset managers build into their companies the competitive agility required to pivot quickly in response to marketplace events. Sophisticated analytics technologies will be essential to developing an asset manager’s predictive capabilities—anticipating the impact of business and technology developments and helping to steer the business toward sustainable growth.