We believe that a new investment management value chain will emerge. This will necessitate far reaching changes to proposition sets, client engagement strategies and key aspects of the operating model. Today’s proposition is unlikely to be suitable for the broader client base of the future.
The days of the ‘product-push’ model and being able to attract flows solely on the premise of delivering a decent return are in our view numbered. Not only will aspects of the investment process be called into question, what investors’ value from the industry will change, potentially fundamentally.
Traditional products will increasingly become components of more flexible solutions. We will see a greater demand for outcome certainty, investment niches will become more mainstream and the current approach to investing may change radically in the ‘new world’.
We believe that investment managers can play a much broader, deeper role in clients’ lives and the industry value chain. However, it will require a very different business model; one which requires providers to be much more engaging and relevant to a broader range of customers. This will mean understanding clients far better than today and creating a new value proposition based around education, outcomes (not just returns), flexibility and personalized solutions.
Investment return will continue to be important but we believe that the pendulum is continuing to swing from manufacturing to distribution. As such, client proximity and understanding will become increasingly important differentiators.
This is often easier said than done, particularly in an industry where intermediaries are prevalent. And yet, investment managers have a range of inherent capabilities which could be better leveraged and they can play a more important role in the value chain. This could be through a greater role in asset allocation, development of a broader range of solutions, helping intermediaries better understand and educate end-investors or taking a lead in aggregating an investor’s total financial position.
And if the industry is to aspire to serve a broader client base with value-added services, it will need to rethink its operating model.
Technology will play a central role. While huge investment is being made in IT, this is primarily to address legacy issues of yesterday and the problems of today rather than the needs of the business tomorrow. Investment managers will need to invest for the future. They will need to design and create new platforms with the flexibility, scalability and functionality to support a much more diverse client base and deliver a step change in costs, control and the client experience.
The technology platform and supporting infrastructure must also enable the ability to capture, harvest and leverage data. Ironically for an industry founded on analysis, to date it has struggled to take advantage of the information available to deliver insight into its clients and shape proposition and engagement strategies accordingly.
One of the other looming issues is people. The new business models will demand new skill sets and technology could continue to replace many traditional roles. The industry will need to adjust to the prospect of acquiring talent from different pools and employing a more diverse multi-generational staff which will have a similarly diverse range of expectations.
Investors’ expectations will be different, seeking greater certainty and personalized solutions and demanding more holistic overviews of finances.
Positive market prospects, the lack of innovation and new technology, creates potential for disruption from new entrants and propositions.