asset management fresh ideas, financial services complacency, asset management existential crisis

Another quarter, and year for that matter, just concluded, so it seems appropriate to look at what asset management firms are currently doing to increase AUM growth, reduce costs, and strengthen ROI. While overall institutional asset managers saw a net positive flow of $19.7B in Q3, turning the tide of 11 consecutive quarters of just the opposite, U.S. managers experienced yet another round of outflows, $123.6B to be exact.

It will be several weeks before the Q4 numbers are released, but with 2017 in full swing, many traditional firms are looking to tackle their challenges head-on and without delay, as no one expects this year to be any less turbulent for the industry.

An Existential Moment

“If you are an alternatives investment player, a private equity firm, a hedge fund, a venture firm…[or] a big index player, there is a roadmap for how you make money and how you grow, but [for] the rest of the industry… at least a half, if not two-thirds of the business, the roadmap is very uncertain,” said George Wilbanks, founding partner of executive recruitment firm Wilbanks Partners, to FundFire last month.

“Firms are changing up the game a little bit to say ‘what worked over the last 20 years isn’t going to work in the next five years and either my management team is rising to the challenge or we are going to make a change’ and some people are self-selecting out,” added Wilbanks.

In an effort to broaden strategic horizons and resolutely address the above-mentioned operational components of AUM, costs and ROI, firms are looking to fill executive roles with external talent. This pivot away the industry standard internal succession plan is more about adopting fresh ideas than it is finding qualified candidates, with the latter historically being a non-issue for the space. However, because dozens of firms within the industry are struggling to solve persistent problems with legacy solutions, bold action, which involves reinventing models, reengineering processes and reevaluating demands, has become a necessity for those not looking to consolidate, especially in the wake of the DOL rule.

“There is a lot of senior executives in the industry that were either great portfolio managers or great sales people but never really had to worry about the details of how [to] run the company… efficiently,” Wilbanks said. “Not a lot of people are up to that because they never were trained to. They were trained to be great sales people to take advantage of rapidly growing markets or they were great portfolio managers generating alpha.”

How Am I Not Myself?

While it’s probably hyperbolic and, quite frankly, impudent to suggest that asset managers ask such a question in the same manner as Brad Stand, it is worth considering the fact that if one positive trend exists almost ubiquitously within financial services, it’s that firms are recommitting to their core competencies, investing in and relying on advances in technologies like cloud computing, content automation, blockchain and AI to help them shed bloated costs, outsource secondary activities and raise productivity. No doubt the trend in externally-sourced CEOs is an essential piece of a much larger, bolder strategic puzzle.