Customised future for asset management
Amin Rajan, Create
Asset managers need to innovate and shift from products to solutions, which will require greater engagement with clients
The innovation focus in the asset management industry is shifting from quantity to quality, according to the latest study by consultancy Create-Research. Around 74 per cent of respondents currently have 10 or fewer products in their innovation pipeline, roughly half pre-crisis levels.
“Until 2008, products have come onto the market in pursuit of the next race horse, but solutions-driven investing is today gaining traction,” said Amin Rajan, the firm’s CEO. Ageing demographics is the biggest driver of innovation, with products that deliver regular income, low volatility and inflation protection attracting inflows.
That means improving the inherent features of existing products more than creating new ones. The shift from products to solutions will require client engagement, and customisation will dominate the next wave of innovation.
Until 2008, products have come onto the market in pursuit of the next race horse, but solutions-driven investing is today gaining traction
The industry has grown so rapidly from a craft shop to industrialisation that it has not been able to develop the DNA conducive to client needs, and the innovation process faces several challenges, believes Mr Rajan.
Unlike cars and computers, investment products do not have a definable shelf life or replicable outcomes. What asset managers are selling is a promise, which may or may not be delivered.
Innovation relies on mobilising the corporate memory that each organisation has.
But when asked to identify the metrics used to assess the effectiveness of the innovation process, financial metrics, such as AuM raised within a specific timeframe, overwhelm the non-financial ones. The size of the ‘ideas bank’ and the ‘number of rejects’ after stress testing, used as proxies of process success in innovation exemplars such as Apple or Toyota, are given little consideration.
Innovation requires a huge degree of interpersonal collaboration, which is something new for the industry, yet 82 per cent believe it can make a difference.
Many asset managers are also suffering from ‘innovator’s dilemma’. Why rock the boat when a big legacy book of assets is already delivering a steady and handsome fee income?
While innovations are very much a result of “failing forward”, in the asset management industry, subject to fiduciary constraints, this is not tolerated. “The problem is that a lot of products are not properly stress tested.”
As a result of benchmark addiction, which does not allow talent to thrive, and disintermediaton, which has made it harder to understand clients’ investment goals and risk appetite, fads have become a norm.
Long-term success relies on robust innovation processes and on the ability to generate products that are fit for purpose, said Mr Rajan.
This is even more important considering that in 2012, of the 70,000 share classes in the fund investment universe, only 185 of them attracted almost 100 per cent of the net inflows. “This is a winner takes all world,” he added.
