InvestmentsJun 23 2014

Asset managers must adapt: KPMG

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Asset managers are set to face huge disruption in the next 15 years as the industry moves to place more weight on distributing rather than manufacturing products.

In a report from accountancy group KPMG, entitled ‘Investing in the Future’, the firm forecasts a range of disruptions facing asset managers in the next two decades.

One of its key findings suggests asset managers will need to “genuinely get closer to clients” to succeed.

KPMG said such a tactic would give asset managers a “deeper understanding of their [clients’] needs and [maintain] a relationship over a greater proportion of their life”.

But the report acknowledged that such a shift in strategy from asset managers would be tricky in a world of financial advisers.

“This is often easier said than done, particularly in an industry where intermediaries are prevalent,” KPMG said.

“Building stronger partnerships with key intermediaries will be increasingly important as the investment manager will need greater visibility into the profile and behaviour of the end-investor to effectively develop relevant solutions.

“If it is unable to achieve this, it faces the prospect of remaining simply a manufacturer of components for others to combine into value-add client solutions.”

Some asset managers have already taken steps to adjust their strategies when it comes to distribution, focusing more on key intermediaries.

These intermediaries include platforms, large adviser networks, wealth managers and private banks.

Late last year JPMorgan Asset Management restructured its sales team, bringing in Andy Larkin from Neptune to head up a new division focusing on key “strategic partnerships”.

The move by JPMorgan followed a similar decision made by Fidelity earlier in the year, when it overhauled its sales team, reducing the number of adviser-facing roles to focus on key partnerships.

And last week US firm BNY Mellon followed suit, adjusting its UK wholesale distribution team to focus on key relationships.

Consultancy firm The Platforum last year predicted that all fund groups could be forced to adjust their sales teams to focus more on key relationships, noting that the phenomenon would pick up as more firms moved to a centralised investment proposition with a rigidly controlled buy list.

The KPMG report added that asset managers and intermediaries would begin to work closer together to provide solutions for clients.

It explained: “This is not to suggest that investment managers will disintermediate intermediaries, although vertically integrated [direct-to-consumer] models will, in our view, increase.

“However, we can see an opportunity for the relationship between the two to develop and change such that it is far more cohesive and more effectively brings together the combined strengths and resources of both organisations to support a more diverse client demographic with significantly different expectations.”

However, while KPMG claimed such close interaction could allow asset managers to succeed, it also outlined several other potentially negative changes, including continued downward pressure on costs and innovative new asset management companies upsetting the existing order.

New entrants threaten to disrupt investment management

One of the main disruptions for asset management firms outlined by KMPG was the potential impact of well-known consumer brands moving into investment management.

The KPMG report highlighted the low reputation that asset managers still have among investors since the financial crisis.

It said it would “take time to rebuild trust and polish brands tarnished as a result of the crisis” and that would give an opportunity to a company with a high reputation to move into asset management and disrupt the industry.

The report suggested that Apple, Facebook and Google (above) – the three “most-admired” firms in the world, as stated by Fortune magazine – could become the “next powerhouses in investment management” if they look to leverage their existing strong brand and relationships.

It pointed to Apple’s 400 million-strong consumer base that uses its iTunes payment system, calling it a “loyal client base from which to build a potential banking entity”.

It also highlighted Facebook’s plans from April this year “to enter financial services in the form of remittances and electronic money” and Google’s innovations with Google Capital and investing in a peer-to-peer lending firm called Lending Club.

However, KPMG said it was more likely the firms would “partner with established providers” rather than launch fully-fledged investment management propositions themselves.