Talent in asset management has always been competitive. Headlines blare when teams are poached or top managers switch firms. But success relies on more than front-office superstars.
Digital expertise — in the form of both human capital and technological advancements — is the new secret sauce for survival and growth.
New data from the 2018 Readiness Report from FIS suggests that digital innovation has the strongest correlation with AUM growth. Based on a survey of more than 1,500 senior decision-makers at financial services firms around the world, including 390 asset managers, we discovered that firms that invest in digital expertise are growing 1.5-times faster than their peers, while the industry as a whole scores relatively low in its digital capabilities.
The industry is embracing technology with greater openness than in the past, partially due to strong AUM growth. The value of global AUM rose 12% to over $79 trillion in 2017, the strongest annual growth since 2009, Boston Consulting Group finds.
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The company is evaluating ways to package both its quantitative and active strategies into the funds, according to a person familiar with the matter.
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To encourage a budding relationship with younger clients, firms must provide new offerings and more guidance about how to invest, Schwab says.
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Clients will flock to digital advice, but conditions favor incumbent firms, a study found.
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"Few asset managers, however, have mastered digital and analytics at scale," says BCG senior partner Brent Beardsley. "[They] would be wise to take advantage of a strong year to reinvest capital and talent in future growth."
Our research corroborates that advice, underscoring the importance of addressing the human side of the strategy. Twenty-five percent of asset management executives say organizational culture is one of the biggest barriers to digital innovation, 16% point to an insufficient organizational understanding of digital issues and another 15% cite talent gaps.
Top-performing firms are already taking action. Fifty-three percent are recruiting for new digital skills, versus just 30% of the rest of the industry. Roughly 37% are appointing leadership roles with an innovation remit (versus 20% of their peers), and 51% are encouraging a more open and innovative culture, compared to 29% of other managers.
Some firms are adopting new senior leadership structures to help direct their efforts. For example, HSBC set up a technology advisory board comprising CEOs, scientists and entrepreneurs from China, India, Israel and the U.S. to help steer its digital strategy.
Others are turning to the tech sector to acquire digital expertise. Goldman Sachs, for instance, recently recruited the former head of Amazon Web Services' AI laboratory to spearhead its AI strategy. BlackRock is staffing its new AI center in Silicon Valley by hiring more than a dozen data experts there as a means to experiment on ways of "making employees more efficient rather than replacing them with technology."
From emerging technologies to new regulatory scrutiny, Aite Group analysts expect to see many firms redefine their business models in 2018.
But vying for and retaining tech-sector talent brings new demands in order to compete with the modern work culture. Serving to attract and retain job-hopping millennials, BlackRock and Legg Mason have introduced unlimited vacation and expanded individuals covered by paid parental leave, respectively, for its employees.
As asset managers bring new ways of working and new business models into play through digital innovation, they will need to adapt to performance-management practices and incentive structures as well.
So what can managers do to keep up? To put it simply, remember the people side of digital innovation. To expand into new markets, build product offerings and grow client bases, managers who lead the pack will prioritize investments in vital technology — but also have a renewed focus on their (1) people, (2) culture and (3) organizational structure.
By infusing tech-minded professionals alongside traditional investment talent, adopting open and agile teams with modern and flexible work-life integration options and encouraging cross-functional experiences, asset managers can fully unleash the transformational value that digital innovation brings.
