Alarm bell over ‘valley of death’ for mid-sized asset managers

Outlook for companies with no competitive edge is bleak, warns consultancy firm Bain.

But is it a perfect storm or a perfect opportunity?

A severe squeeze on profits over the next five years will drive many mid-sized asset managers out of business and force those that survive to restructure operations, according to Bain. Regulation, rising costs and the end of low interest rates will drive up competition and erode profitability.

There are two ways out of this – go big, or differentiate. We’re already seeing the first with the London mega-mergers of late. To differentiate, that might mean carving out a niche in high-alpha products that command higher fees, or beta-led solutions that drive significant volumes. Or it might mean embracing the future in transforming asset management businesses into nimble, customer-led service-providers delivering a high-quality experience as well as outcome. Easier said than done in any industry, let alone a highly regulated one that’s lost contact and the ability to communicate with its end customer and is notoriously slow to adopt new technologies. The notion of highest quality user experience and customer-led design and development are a long way off.

To strike a more optimistic note – it will happen. But will it be the behemoths that lead the way? Can they discard their compliance-led culture of risk control and operational inertia? Or will it be the smaller players that embrace and deliver the digital transformation that will drag our industry into the modern world?

Finally, what does this mean for us marketers? It doesn’t take much imagination to see how exciting this is – to engage with our customers via winning experiences and niche investment solutions, and to monitor their behaviour and deliver that insight back into the business for future strategic direction. The age of the colouring in department is gone. The age of the marketing-led, experience-led asset manager is upon us. And who knows, your sales team might even buy you a drink!

Note on the FT:

Theirs is a subscription model. If you don’t have corporate access, sign up for their emails (you can choose exactly what you receive and how often) and that gets you free access to eight articles a month. FTfm on Mondays is all you need to keep up with the big picture developments in our industry, and be sure to catch the always enlightening Merryn Somerset Web every Saturday in FT Money.

Outlook for companies with no competitive edge is bleak, warns consultancy firm Bain. But is it a perfect storm or a perfect opportunity?

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