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The evolution challenges for fund managers post GFC


While several years have now passed since the Global Financial Crisis challenging aftermaths still remain. Fiscal stimulus and monetary policy implemented by most governments across the globe have struggled to lift economic activity to prior highs. A low or even negative interest rate environment has made it inherently harder for fund managers and investors to attain meaningful returns without undertaking higher risks.

The reputational impact of the GFC across the funds management industry was unprecedented. Investors wanting to avoid losses withdrew their investments and looked to recoup their shortfalls by holding portfolio managers accountable and responsible for the severe market and economic downturns. From retail to wholesale, investors became skeptical of the skillsets and capabilities of portfolio managers.

In addition to a tarnished perception and a post GFC vulnerable economic environment, political uncertainties including the Refugee crisis, Brexit, US elections and a Chinese slowdown to name a few, made markets more volatile and difficult to navigate making it harder to deliver consistent returns.

While the funds management industry has gradually evolved since the GFC it has probably done so at a slower pace as it has faced several challenges. From regulation overhauls to unprecedented market scenarios the funds management industry has had to maneuver through difficult environments. However, without a doubt modern advances in technology and education are reshaping the financial services sector posing opportunities and challenges for the funds management industry.

The post GFC landscape for funds management is a brave new world:

Regulations - Fund Managers have had to adapt their operations to accommodate new regulation regimes demanded by governments who imposed hefty fines for noncompliance but offered no solutions or little guidance for their practical implementation.

Client - Post GFC skeptical client psychology and distrust - Investors demand clarity, liquidity, transparency and scrutinise fees like never before, posing challenges to the implementation of investment strategies beyond their financial literacy and comprehension. For this reason clearly articulating value propositions, providing educational material and undertaking a coaching approach throughout the sales process has become essential for client acquisition.

Product - In addition to a more demanding investor market, finding yield and producing meaningful returns for investors has become inherently harder due to contracting economies as well as monetary policy resulting in low or even negative interest rates. Political uncertainties have also made markets more volatile posing challenges to navigate markets and deliver consistent returns over time.

Communication - The social media revolution has raised the bar on the expectations for ongoing communications as well as magnified noise and media hype intensifying the investment journey. Managing expectations and taking a proactive approach on client communications has become more essential than ever to ensure client retention. Communications are also expected to be clear, short, information rich and visually appealing.

Service - Design, user friendliness, client portals, ease of access via mobile devices, apps, chat bots, live and visual data, online applications are now part of modern expectations and something that investors can place as much focus and consideration as investment returns prior to selecting a portfolio manager.

Operations - Disruptive technologies that can give you or your competitors a competitive edge are constantly emerging. Keeping abreast and reviewing systems that can automate and streamline operations has become vital as they can reduce operational costs which can translate into lower fees for investors giving fund managers a commercial advantage. `

Competition - As the financial services industry evolves, competition in the future will stem not only from mainstream asset classes and markets but from non-traditional fintech propositions. Developments in crowd funding, robo-advice, big data analytics, algorithms, peer-to-peer based platforms and virtual currencies among others are set to evolve as well as seek to gain market share.

According to PriceWaterhouseCoopers (PWC) top banking executives fear that more than 20% of their traditional financial services will be at risk to fintechs by 2020.

A Goldman Sachs research report in 2015 estimated that ($4.7 trillion out of $13.7 trillion) in revenue from traditional financial services is at risk of being displaced by new fintech entrants with propositions across lending, wealth management, payments and others.

According to a McKinsey’s report in 2015 as much as 40% of revenue in retail banking, consumer finance, mortgages, small-business lending, retail payments and wealth management – are at risk from fintech startups seeking to attain market share away from the banks.

For this reason innovation teams that keep abreast of the advantages, limitations and implications of emerging technologies and fintech propositions should play an integral part in business strategy and planning.

Innovation teams can grow your value proposition by identifying opportunities for product upgrades, strategic partnerships and acquisitions to help ensure that offers remain at the forefront in the market place.

In addition they can also help identify your competitive edge over new market entrants enabling businesses to voice and create awareness of their value add over new offers which can be critical to retain market share.

In conclusion the above challenges highlight the critical importance of having core agile business structures and systems in place, as well as closely monitoring emerging technologies to ensure you can evolve your operations in due course and succeed in adapting to an increasingly fast paced environment.

Strategic view point by Carlos Mauleon - Director & Founder of BIZNEX Consulting – Strategic Business Initiatives & Marketing for Financial Services

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