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View the article online at http://citywire.co.uk/wealth-manager/article/a759694

Four critical calls for the 'seismic' shift in asset management

by Dylan Lobo on Jul 01, 2014 at 13:33

'But fund managers still need to persuade the end user to use their products. It is nonsense to sell to an individual IFA firm with two adivsers at the same price as a regional IFA. This was easier in the days of cash rebates, which were simple to administer.

'It is more complex in the world of unit rebates, and fund managers are unwilling to knock another 10 basis points off their fees.'     

4) Costs

There are considerable cost challenges facing the industry. These include systems upgrades, the battle for talent raising staff costs, while at the same time managers need to generate alpha to justify higher fees.

Most asset managers have employed limited cost-cutting and more disciplined spending, highlights the EIU. For example, Aberdeen plans to launch a cost-cutting programme over and above that required from its acquisition of Scottish Widows Investment Partnership.

Ambrosius pointed out that companies outsourcing functions in a number of different ways to keep down costs.

'The boutiques are in trouble because of the new regulatory requirements, and they have decide whether to renovate their infrastructure totally or go for a one-stop-shop solution and focus on making investment decisions,' he said.

'The mid-sized asset managers are asking: What is our future business model? If they are too small to play at scale, how can they compete?'

'[Meanwhile] the larger asset managers are outsourcing, but it is a more component-based outsourcing. They may just outsource a system. Data management is a system where many are outsourcing.'

Conclusion

The EIU believes over the longer-term asset managers need to engage fully with these 'seismic' shifts. It is essential the industry understands its own cost base, products and pricing, along with those of its competitors.

'How well traditional asset managers adapt their distribution strategies and product mix will determine whether they will keep a place in this new, more concentrated and cost-focused market,' said the EIU. 

'[And] how well they can manage the gatekeepers will determine whether they - or another part of the value chain - are the ones that come out on top.'  

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