By most measures, it was a pretty normal day in the City of London. The date was 18th November 2016 and for most people in the asset management industry, it was business as usual. Whilst the sun shone, albeit with its wintery complexion, dark clouds were beginning to loom. This was the day the FCA published their interim report on its findings in the asset management industry. You can read the entire prose of over 200 pages here, with the final report due for publication in Q2 2017.
We can all wait with eager anticipation, but the writing is on the wall. The FCA – whilst largely concerned with matters pertaining the UK industry – is clearly firing a shot across the bows of the industry, citing significant fractures across the whole global sector. These will require immediate action from everyone, which probably means that – in the space of 3-5 years’ time – many firms may not even exist as we know them today. To be ever so slightly crass, Andrew Bailey, the CEO of the FCA, is basically saying “sort your life out and stop ripping off the consumer. They are all the same to me – institutions or retail – you have enjoyed a nice little gravy train for too long.”
Before we move onto the specifics of how all of this could possibly relate to the “digital economy”, I think it worthwhile taking an educated guess at what is probably being said at the Board level of many of the leading asset managers in the UK (and beyond). In slightly light-hearted prose, here is what I think they are discussing:
- “Crikey, we need to cut costs – fast.”
- “Blimey, we need to start creating much more efficiency in our distribution chain!”
- “OMG, are we really trying to create a Direct to Consumer proposition on our own? Is that really the answer to Generation X?”
- “For goodness’ sakes, investment consultant, advisor, distributor – whatever you want to call them – they need better education about the things we build. Why are we finding that so hard to do?”
- “Get a grip! Can we, for once, start focusing on the consumer and what they need, instead of what we think they want?”
As you can see, I will probably never get invited to join the board of a top 50 asset manager, but – hey, that’s not my problem.
If you want a perhaps more refined depiction of what is going on in the boardrooms, I recommend you take a look at an article written by Martin Gilbert, Chief Executive of Aberdeen Asset Management. This article was published by City AM three days after the FCA interim report was published. I found it very insightful and – whilst the words are measured in a style in keeping with a CEO of a large asset manager – read between the lines. He captures the key issues very well from my perspective. This article lets me segue into our home turf here at Kurtosys: the whole topic of “digital”. Martin alludes to “digital” throughout his article, and quite rightly so; it is the subject that, other than investment product “shape” and of course performance, can most influence the outlook of our industry over the next few years.
For asset management, I fundamentally believe this, but feel that our industry has lost sight of what “digital” means for them. Let me explain. Barring Direct to Market (DTM) propositions, which many large asset managers are either considering or have launched (e.g. UBS Smartwealth), the core asset management industry needs to remind itself of what it actually is. Only then can it begin to reimagine itself.
So what is it? At the end of the day, most are “manufacturers” of investment products. In the context of digital, go to some of the world’s leading manufacturers. I looked at the websites of Boeing (aircraft), Otis (Lifts and Elevators) and GSK (Pharmaceuticals). All are about (guess what!) their product and their distribution channels, augmented with great content and thought leadership, but none are trying to get you to actually BUY something. Instead, all of them are trying to educate through their channels and demonstrate that they are the best in the world at making things. I think some digital teams within our industry have lost sight of this and have become overly caught up in the transformation of the consumer, through the remarkable rise over the last ten years of the likes of Amazon, eBay, Google and Facebook.
I want to reiterate that, barring DTM propositions, the Silicon Valley models for the consumer internet are largely overkill for what our industry really needs. But, before I move on to what is needed, one last thing on DTM propositions: I wholeheartedly and passionately agree that asset managers should consider launching some form of DTM proposition. However, what I disagree with is that they think this is about technology and all things digital. They are wrong.
The Cost of Customer Acquisition (CAC) is a commonly used measure in technology circles. Applied to the DTM propositions currently being considered, this ratio could create a frightening draw on capital for asset managers who want to succeed in this space. The cost of brand building alone could stretch to high double digit millions, and I don’t think it is a simple as justifying it as a regulatory strategy for the “long tail” of investors they have on their books. Capital is what asset managers need right now. The solution for DTM (for the larger asset managers) is through partnerships with retail banks and potentially so-called “challenger banks”, although these are still relatively infant. These ready-made retail channels have huge, natural investor bases and household branding.
OK, I’m done with DTM for now.
Back to mainstream “digital” which, alas, needs to take a hard look at itself and get somewhat practical. It’s a here-and-now issue, and my 5 recommendations for 2017 are as follows:
- Start thinking like a world class “manufacturer” and focus on your channels and the products that serve them.
- Whilst, from a regulatory perspective, institutional investors are different to retail ones, don’t be fooled. The lines between them are blurring and you should focus on their needs as opposed to how you think they should be divided.
- Look at your digital organisation. If you are a smaller asset manager, you are probably understaffed. If you are a larger (top 50) manager, you are most likely overstaffed. Find the “Goldilocks zone” and use partners to get you there, instead of a rack of too many or too few FTEs.
- Empower your channel marketers; they can turbocharge your sales engine. Give them digital autonomy and the tools they need to create campaigns and manage localisation for investor types, geography and product.
- Stop thinking about how you can sell funds through partnerships with Facebook and shops in Amazon. That will all come. Build the foundations of a world class manufacturer first.
We at Kurtosys are passionate about all things digital for the asset management industry. We care deeply about the shape this industry will need to take if it is to evolve and thrive in the way it can. This is the time for it to do so. Change is no longer just an option.
He is a non-executive board member of a number of Fintech startups and takes a broad interest in how innovative technology is shaping the future of financial services.
Mash holds a degree in Mathematics and Computer Science from the University of Warwick and a Masters in Finance from London Business School. Away from Kurtosys, Mash is most likely to be found with his family and dog, Bode, or indulging his passion for soccer, supporting Arsenal F.C.
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