Global analytics firm Cerulli Associates say asset managers and other financial institutions plan to invest in product, distribution and FinTech in 2014. Those were the key themes emerging from the January 2014 issue of The Cerulli Edge®: U.S. Asset Management Edition.
The report examined trends in asset allocation and alternative products, institutional distribution and product developments. But one theme dominated all others: the need to manage costs and grow revenue.
“Managing costs is as fundamental to profit generation as producing revenue” – Cindy Erickson Zarker, Director at Cerulli
Of course, this is not a new idea. Asset managers have been trying to reduce cost/income ratios for years and many have already invested in technology to streamline efficiency, manage data or enhance client reporting.
According to Cerulli, 75% of large and medium-size asset management firms are using automation tools and an additional 13% plan to start using such tools.
Among small firms, it’s a slightly different picture. None of those surveyed are currently using automation tools within their asset management business but a sizable number (44%) plan to adopt them.
“There are meaningful areas where firms can derive cost savings to boost profits” – Zarker
Yet even amongst firms already using automation tools there is plenty of scope to go further. A typical asset manager spends a significant chunk of its budget on managing the flow of client information. Whether it’s producing fund factsheets or maintaining the delivery of regular client reporting, technology is constantly evolving to offer new ways to cut costs, save time and free up resource to focus on more strategic issues.
“Firms’ focus on profitability is the primary change to their strategies in the next 12 months.” – Zarker
Increasingly, technology is developing new ways to engage investors and drive profitability at a client level. This increased focus on profitability was noted by Cerulli and again, makes perfect sense. Designing and implementing a value proposition that can woo investors whilst delivering ROI for shareholders is the endgame for most asset managers.
Delivering on those objectives often boils down to client loyalty.
Profitability has long been associated with loyalty. The more engaged a customer is, the more assets they bring to the financial relationships and in turn, the more likely they are to stick around and recommend their wealth manager. With estimates suggesting that loyal customers are worth three to six times more than the average investor, client allegiance is certainly a goal worth chasing, but just like most valuable things, there’s an inevitable cost attached.
- Clients want to be engaged with thoughtful content and well research education programs
- Investors expect 24/7 access to fund commentary, market updates and reporting tools
- Customers want to be treated like individuals and want to see proof of that in the personalization of products and services
- Prospective clients want to instantly find the information they need whilst advisors want bespoke portals to house secure client records and promote peer collaboration
- Everyone – institutional and retail investors and their advisors – wants proof that their asset manager is innovative and capable of delivering a slick investment experience
The good news is that technology makes all of this possible, provided that the right strategy and investment is put in place.
“Supporting their 2014 firm-wide efforts to innovate new products and services, expand distribution and build brand awareness requires managers to invest in their businesses,” say Cerulli. “Investment in technology and costs of compensation ranked among the areas with the greatest impact on margins.
As HNW investors increasingly look online for proof of an asset manager’s reputation and service standards, fund websites, reporting tools and 24/7 accessibility become crucial avenues to build awareness, trust and loyalty.
With the benchmark for digital customer service set high by online retailers like Amazon, financial providers have some catching up to do but with the right investment, technology can shorten the journey.
You can find more advice on key industry pain points and FinTech trends in the following posts from the Kurtosys blog: