Perspectives

The asset manager's conundrum


25 July, 2019

Asset managers understand that they must adapt to a changing industry. They just don't like it.

“They understood everything we were saying, they just didn't like what they were hearing.”

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The problem is, setting a plan and communicating it effectively is not a norm for asset-management leaders. It never had to be. According to Korn Ferry survey data, employees at asset-management firms score lower than the average for all other firms when it comes to having a good understanding of their organization’s strategic priorities and goals and how their job contributes to achieving them. While asset-management employees are generally more engaged than their peers, they also express a higher propensity to leave their firms.

Jennifer Streitwieser, an associate client partner and North America leader for Korn Ferry Listen, says the data portends a possible recruiting and retention problem for asset-management firms. “Senior leaders can do more to help employees understand their role in helping make the firm’s vision come to life,” she says.

Put another way, asset managers feel disenfranchised because they are no longer the focus of their firm’s strategy. They aren’t wrong. The asset-management industry is becoming bifurcated, with low-cost ETF providers grabbing market share on one side and premium, differentiated, personalized products on the other. Competing in the former requires technology and infrastructure upgrades, while doing so in the latter requires unicorn talent able to construct complex trading models and convince people to buy them.

“It’s becoming more and more difficult for firms and asset managers to differentiate themselves,” says Astmann. “Most find themselves in the middle having to make a decision to go one way or the other.”

When industries enter secular decline, consolidation usually follows. The asset-management industry is no different—the need for scale and growth is driving a wave of mergers and acquisitions among firms. For the year ending March 2019, total deal volume grew 35% compared to the previous year, according to a report from Mercer Capital. Last year ranked as the busiest in a decade for asset-management deals. The largest of those deals came in October 2018, when Invesco bought OppenheimerFunds from MassMutual for $5.7 billion in stock.

Communication breakdown

A recent Korn Ferry survey shows that while asset-management firms have compelling strategies, senior leaders can do more to communicate how employees contribute to the firm’s future.

communication breakdown

 

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To prevent the firm’s mission from getting lost in translation, this client simplified its goals and how each division contributes to them into a one-page memo with metrics and targets across five strategic areas.

“The idea was to give everyone a baseline understanding of where we are headed and what we are trying to do, and how IT, operations, support, and every other area is connected to and measured against the firm’s view of progress,” says this client.

There is reason for optimism. Asset-management employees, by a margin of 72% to 67%, have a stronger belief that their organization has the right strategic priorities and goals than the average of all other firms generally. They are also more engaged overall, scoring higher than their peers on commitment to the organization, motivation, and willingness to recommend their firms as a good place to work.

But firms are having a hard time leveraging that enthusiasm into new ways of working. Korn Ferry survey data shows that asset-management employees have a less favorable view of how their firms use new technologies or creative approaches to improve how work is done. Astmann says that firms can change employee perception with the basic blocking and tackling of communications, such as providing more training and education opportunities and creating more cross-functional committees to work on new initiatives.

Asset explosion

The last few decades have been very good for asset managers, with growth in money under management, revenue, and profits soaring.

asset explosion

 

At Oppenheimer, for instance, Doyle started taking small groups of employees to design-thinking training and creating empathy maps to help employees understand their role in the client journey. The firm also started holding innovation competitions, investing money in winning ideas to take to market. Doyle, who left Oppenheimer following its deal with Invesco, says underscoring these programs is the premise that technology is coming into asset management more and more, and managers need to be trained to develop their careers around skills that can’t be replaced by machines.

“Understanding where and how they can add value is the best way to keep managers engaged and in a learning mindset,” he says.

For more information, please contact Chad Astmann at chad.astmann@kornferry.com.