PERSPECTIVE

The asset manager's conundrum

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

The problem:
As the asset-management industry matures, it is becoming more and more difficult for firms and managers to differentiate themselves.

Why it matters:
To evolve their business models to meet market pressure and consumer demands, leaders need to keep talent fully engaged.

The solution:
Set a plan and communicate it clearly and transparently to gain employee buy-in to the firm’s strategy and mission.

At first, Andy Doyle couldn’t figure it out. The former chief human resources officer at the asset- management firm OppenheimerFunds was stumped by the fact that internal engagement-survey data showed that employees felt the organization had a good strategy and believed in senior leadership. Yet they also felt that the firm communicated its strategy poorly and wasn’t transparent about its plans. How could employees have faith in the organization and its leaders while simultaneously mistrusting what it was saying?

download this article in PDF form

Doyle began diving deep into internal engagement- survey data a few years ago, when the asset- management industry writ large was at the peak of disruption. He convened a few focus groups with employees at all levels and in all divisions of the firm to find out. That’s when the answer hit him. “They understood everything we were saying, they just didn’t like what they were hearing,” he says.

Not a lot of asset managers like what they are hearing lately. Beating the industry benchmark by 2% doesn’t move the needle much anymore. Exchange-traded funds (ETFs)—which combine the diversification of a mutual fund with the low-cost trading benefits of a stock—and algorithmic trading can do that much faster, for cheaper, and in the frictionless way today’s consumers demand. As a result, management fees are shrinking, compressing profit margins for firms. At the same time, firms are pouring tens of billions of dollars into digital technology to lower costs and execute trades quicker; one millisecond could mean the difference between making and losing millions of dollars, after all.

All this is foreign territory for asset managers. For the last three decades, success was pretty simple: generate returns. And generating returns was pretty easy. Financial markets have been on a historic bull run, marching upward with little volatility, and the regulatory environment has been largely favorable until recently. With more money entering the market than ever before—global assets under management are at an all-time high of nearly $90 trillion, with industry profits about half that amount—those conditions created a windfall for asset managers. The fees generated literally built many of the largest asset-management firms in the world.

“In this kind of environment, where you have a maturing industry going through disruption, the formula for success is no longer clear,” says Chad Astmann, a senior client partner and global co-head of the Asset & Wealth Management practice at Korn Ferry. He says the industry’s leaders face a critical test. In order to evolve their business model to meet market pressure and consumer demands, leaders are going to have to execute a transformation plan that keeps talent fully engaged. “Ensuring employee engagement and discretionary energy behind the firm’s strategy and mission are at an all-time high is critical,” says Astmann. “Otherwise asset-management firms risk total employee disengagement.”

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

* * *

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

The difference in this deal wave is that firms aren’t just trying to increase assets under management. Instead, they are buying technology, skill sets, and even client relationships and merging them together to create efficiencies. According to one Korn Ferry asset-management client, a by-product of growth, whether through acquisitions or organic expansion, is that employees grow more disconnected as firms get bigger. “As firms become more complex, that’s when you start to see people not understanding how what they do impacts performance,” says this client, whose firm has grown organically instead of via deals. “The strategy gets lost as more people become part of the firm.”

“As firms become more complex, that's when you start to see people not understanding how what they do impacts performance.”
“As firms become more complex, that's when you start to see people not understanding how what they do impacts performance.”

* * *

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.

THE LATEST FROM
THE KORN FERRY INSTITUTE

The research arm of Korn Ferry provides both daily insights on leadership topics and deep dives into the most challenging issues of today’s global executives.

View all the Institute’s Insights and Resources
The Better Boss

On National Boss Day, a look at what works—and what doesn’t—in the evolving world of management.

On National Boss Day, a look at what works—and what doesn’t—in the evolving world of management.

READ MORE
Banking on Consumers

Major investment banks that catered to consumers fared well this week, suggesting a path for others.

READ MORE
A Nickel Short

Demand for the nickel used in electric-car batteries is outstripping supply, forcing auto leaders to ask: How do we keep going when the materials run out?

READ MORE
The Better Boss

On National Boss Day, a look at what works—and what doesn’t—in…

READ MORE
Banking on Consumers

Major investment banks that catered to consumers fared well this week, suggestin…

READ MORE
A Nickel Short

Demand for the nickel used in electric-car batteries is outstripping supply, for…

READ MORE