A golden opportunity for transformational change in the asset and wealth management industry after COVID-19
This article first appeared in Global Banking & Finance Review
The Turkish saying “geçmiş olsun” roughly translates as “let it be in the past.” This simple phrase recognises a painful event, but also expresses the hope that it will soon be left behind. As we begin the transition to a new reality following the coronavirus pandemic, we should embrace this saying by examining what we’ve learned from this crisis and planning how to take those lessons forward.
COVID-19 has created a sense of urgency among asset and wealth managers that should spur transformation at a pace the industry has never seen before. It has highlighted the need for resilient end-to-end digital services driven by data. It has created an opportunity to truly embrace environmental, social and governance (ESG) concerns to build a more sustainable future. And it’s shown how essential an agile ethos is to riding waves of disruption.
By focusing COVID-19 recovery efforts around the three areas of data, sustainability & ESG and agile thinking, managers can set themselves up to thrive in the new reality.
Leverage data for better stakeholder-focused digital solutions
As managers focused on expanding core investment capability through acquisition and increased headcount, siloed architectures, complex systems and processes, and a complicated governance and risk framework developed. In the past, when most investments were into listed or over-the-counter (OTC) type instruments, this complexity created plenty of difficulties. Now, as managers run a greater proportion of private assets, including real estate, infrastructure and private equity, this has become even harder.
Managers now need to push faster and with greater accuracy and timeliness to bring together disparate datasets across product teams, public and private assets, fund accounting, performance, finance, risk, legal and distribution, to name a few. Bringing the data together will elicit nuanced insights into investors’ behaviour, temperament and expectations, letting managers adapt offerings to better suit real client desires.
Such data-empowerment will require managers to adopt data standardisation and a flexible, scalable data model. Models that integrate the individual assets, portfolios, funds, desks, investors and legal entities – by applying analytics and machine learning to a range of investors over time to identify behavioural patterns and forecast future activity – will become inescapable.
Create meaningful investment opportunities that support sustainability and ESG
Firms now recognise that sustainability is no longer a compliance or risk issue, but an incredible opportunity for business. The Business and Sustainable Development Commission estimates sustainability and Environmental Social and Governance (ESG) factors represents at least $12 trillion in revenue and savings by 2030. But wealth and asset managers face several challenges to creating meaningful non-financial value.
Firstly, guidance on ESG reporting and measuring evolves rapidly, with multiple global initiatives as well as specialised ones. In the absence of standardised methodologies for reporting on sustainability, managers will need to define frameworks for themselves to effectively differentiate their products when bringing them to market.
Secondly, managers will need to make better use of alternative data sources – particularly unstructured data – not just within their organisation but also their portfolio company holdings. One such source could be social media. We recently helped an asset manager develop an ESG sentiment monitor using the simple building blocks of social media sites that helped predict negative ESG press coverage three days prior to the event occurring and allowed the manager to prepare their public responses proactively instead of being caught unawares.
While many have already incorporated sustainability into business-as-usual and made it part of their core value proposition (including BlackRock, Schroders and L&G Investment Management) for other firms these approaches only exist in specific areas of the business, driven by individual champions rather than standardised approaches across the operating model.
Finally, there must be a firm-wide culture of sustainability. This can only be successfully implemented by setting the right “tone-at-the-top” and demonstrating that senior leadership lives by the values that they espouse through-out the rest of their organisation. To date, only a few firms have tackled all these challenges successfully.
Embrace an agile and adaptable ethos
Our clients tell us they recognise the need for greater engagement with their investors and prospects. But they also admit they’re not yet able to deliver this consistently.
COVID-19 has re-enforced the need for businesses everywhere to be resilient in the face of uncertainty – to protect their people and their clients. Moreover, it has re-enforced the importance of using good technology to build and maintain trust and manage relationships across teams and with investors, all at arm’s length. Developing a dynamic and responsive organisation requires a fundamental mindset shift towards agile ways of working. Incremental value delivery isn’t just beneficial to technology teams. Our research shows organisational agility improves financial performance. And yet, to date, we have typically only seen these proven change methodologies applied to technology functions.
Managers need to apply agile thinking to wider business operations. Agile innovation sprints will accelerate product development ideation and client testing. Agile value-stream mapping quickens time to market, makes personalised offerings simpler to design and launch, and improves service capability. And agile ways of working concentrate every member of the team onto the same outcome, aligning processes and behaviours.
More broadly, organisational agility promotes collaborative working and drives a less-hierarchical culture that creates higher-performing teams.
The new reality
We are just now starting to emerge from lockdown with the realisation that our industry has changed forever. It’s a golden opportunity for good leaders to take the best of their learnings and proactively determine where they land in the new reality. Let the past be the past and look forward to the better days to come.