«We see the operating model as the roadmap to delivering value for asset managers,» Wim van Ooijen, Northern Trust’s Country Head, Switzerland, says, referring to the asset servicer’s whitepaper on how managers can enhance business efficiencies and support future growth.
Finews.com readers will be aware that the investment management industry remains under pressure. Costs are escalating and margins are compressed for many participants, at a time when the industry is facing increasingly complex regulatory and compliance challenges, and growing technology demands.
It is no surprise that to drive performance in this challenging landscape, asset managers are increasingly exploring scalable solutions for reduced cost and greater operational efficiency. But where does a firm begin when rethinking the traditional way of doing things?
Rethinking the Operating Model
Northern Trust works daily with investment managers around the world that are seeking to re-evaluate and optimize their operating models to more closely align their infrastructure with future opportunities and challenges. «We see this pace of change increasing further, as managers seek to take advantage of new opportunities, innovative thinking and new methodologies,» Wim van Ooijen says.
To share these perspectives, Northern Trust has issued a whitepaper highlighting potential opportunities for managers to drive efficiencies and positive change across their businesses.
Five Key Areas
«Managing Assets Around the Globe – Rethinking the Operating Model» sets out several ideas for where a ‘rethink’ may help asset managers more closely position their investment operations for the challenges and opportunities of the future.
«We believe that investment managers that focus on five key areas can progress towards future-proofing their operations,» van Ooijen explains.
- Use technology to gain a competitive edge
- Build holistic compliance functions
- Develop an outsourcing ‘eco-system’
- Assess if their front office is ripe for change
- Incorporate fund distribution into their operating model
Visions for the Future
For asset managers, the operating model comprises the people, processes, and technology that define a company’s business approach and vision for the future. It addresses how resources should be allocated, how clients and other key business relationships are serviced, and how critical functions, such as the back or middle office, are supported.
Today’s operating models are increasingly complicated networks with technology at their core. Technology is already estimated to make up 15 percent to 20 percent of the industry’s cost base (1), and asset managers have to stay ahead of the curve in order to remain competitive. Furthermore, technological innovation plays an increasingly decisive role in separating the «winners» from the «losers».
Acquired or Eliminated
Industry commentary points out, as technology in the form of automated advice and client service becomes prevalent, the asset management industry is likely to consolidate in certain developed markets, with up to 20 percent of the firms currently in existence either being acquired or eliminated (2).
This is why Northern Trust sees firms continuously evaluating the role of technology in their operating models, so as to create integrated, holistic cross-platform solutions. Technology offers a host of new possibilities, from the use of machine learning to perform repetitive tasks faster and more accurately, to using public and private cloud capabilities to gain efficiencies and scale in powering businesses.
Agile Mind-Set
By placing architecture in the cloud, managers are able to reduce development cycles and create a more flexible cost base. But the most successful investment firms do not just move to agile solutions, they also adopt an agile mindset.
This includes placing cross-functional teams around products and services – and empowering those teams to achieve results.
Successful asset managers are hiring technology talent to drive a new and creative vision and culture in their organizations. They identify disruptive technologies and re-design longstanding processes.
Operational Efficiency
As they fine-tune their strategies, many are splitting technology into ‘core’ and ‘non-core’ functions – adopting distinctive approaches to each in order to help maximize operational efficiency.
Investment firms should also sunset legacy applications as new technologies are introduced, to help prevent regulatory concerns that may arise later from fractured data and operations.
To learn about the four other key areas, visit www.northerntrust.com/rethink
The Future is Now
The investment industry is changing, and now more than ever, agility and flexibility are keys to success. Successful operating models lead to successful businesses – while inefficient ones are unlikely to survive in the long-term.
Whether the solution involves embracing new technology, leveraging the right outsourcing partners, or taking a fresh approach to distribution, the successful asset manager of the future will integrate people, processes, and technology – and prioritize all three. While the pressures are significant, so are the opportunities.
(1) Morgan Stanley and Oliver Wyman Blue Paper «Winning Under Pressure», March 2018
(2) PwC's study «Asset & Wealth Management Revolution», October 2018
