1. Articulating value for money:
Investors are looking to the AWM industry to provide value for their money. The constant introduction of new regulations amid competitive developments in the market will push managers to be even more efficient and to lower pricing. Outcome-based fee structures have also begun to transform the active landscape. Passive players have begun to feel the sustained pressure of low-margin products and move into new areas, such as smart beta. Many are also expanding into alternatives, providing the barbell investment exposures a lot of investors now seek. Fees for alternatives have been more resilient, but market pressure is leading to more innovation, as seen with outcome-based fees. Managers need to focus on articulating their value proposition.
2. Strategic positioning – what’s the plan?
Regulatory and compliance burdens are driving up costs at the same time that investor and regulatory scrutiny is forcing fees lower. Managers need to ensure that investment products and related services are continuously updated to align with investors’ wants and needs, which forces firms to refocus on strategic positioning. Managers must decide whether they’ll operate as scale or niche players. Either choice means changing certain things about the business – by determining the product range, target markets and distribution channels – and striving for operational excellence. Many firms will struggle in the coming low-fee environment, and those without a clear strategic positioning plan will be more likely to fail.
3. Transform through technology – or be eliminated:
Advances such as artificial intelligence, machine learning, data harvesting and processing, and robotic process automation have begun to drive the quantum leap we spoke of in Embracing Exponential Change. There is potential for these technologies to create efficiencies and cut costs, particularly in the front office and in sales and service. Managers that have yet to double down on technologies and analytics that enhance the investment process and the distribution function will fall behind.
4. AWM – fight the battle for talent:
Firms need techsavvy talent in a broadening array of positions, and younger workers increasingly seek companies that reflect their values, challenge them, and offer both work and life opportunities. The AWM industry will need to fundamentally change its culture to entice new talent to join and help upskill current talent. Also, managers will need to replace siloed working groups with integrated, multiskilled teams. These changes will come with costs but also will produce value in the long run.