By Kelley Mavros, PwC Financial Services Fit For Growth Leader-
When senior leaders at asset and wealth management (AWM) firms are asked if they’re more focused on top-line growth or bottom-line results, the answer is often yes. These leaders recognize the continued rapid shift in industry trends, and as they take advantage of growth opportunities they need to do so in a more cost efficient manner. As a result, many are starting to put growth, scalability, and efficiency collectively at the top of their management agendas, with technology driving change and opportunity.
- Crisis and opportunity: asset and wealth management firms face challenges on multiple fronts, seeing only modest relief since the crisis. Headwinds relate to pricing pressures, unrelenting regulatory changes, technology demands, and flat US equity markets. There are, however, some bright spots, including product differentiation, brand reinvigoration, and operational innovation, where rapid efficiency programs have driven reductions in average cost per $AUM by 72% from 2009 to 2013.
- Digitization – The ups and downs:
- Regulatory Impact – The knowns and unknowns: From the DOL Fiduciary Rule to the consolidated audit trail, regulatory changes influence every part of the operating model and increase pressures on fees, transparency, reporting, and capital adequacy. More regulation translates into more compliance and technology spend, squeezing margins further—which may be no higher and may well be lower than in the current post financial crisis era by 2020.
- Consolidation – M&A is on the rise: With all of these factors, the task of increasing both efficiency and scale is often so overwhelming that simply figuring out where and how to start can be difficult, if not paralyzing. To tackle these issues and organize a holistic transformation, we suggest firms explore a Fit-for-Growth framework, a process that senior leaders can use to explicitly link a firm’s strategy to its growth agenda and cost reduction initiatives in a sustainable manner.
First and foremost, firms should align on their strategy and, more importantly, the distinctive capabilities that enable them to win in the market. Do customers come to you because you have high-touch client service? Because you are the easiest to interact with? Because you are the lowest cost provider? The very process of rethinking in this way is transformational, and it provides a guide for both growth and cost:
- Build industry leading capabilities: Invest in sustainable and differentiated capabilities funded by improvements in the cost structure and shifts from capabilities that don’t matter.
- Transform the cost structure: Develop a clear cross-organizational cost agenda, making deliverable choices from front line to back office.
- Reorganize for growth: Implement organization models, processes, and systems to identify potential growth avenues and make the organization agile enough to pursue them.
- Enable change and cultural evolution: Create an environment and culture that embeds change in the company’s DNA and paves the way for a sustainable future and change behaviors.
Fit for Growth is a different approach, and one industry leaders have historically shown not only dramatically reduces cost but makes it stick. Take something as simple as spans and layers. If done without context, this approach can cut “working managers” and costs creep back. Instead, look at the actual work being performed, determine if and then how to conduct it, and restructure the organization around that.
Don’t underestimate the impact of technology, both on critical capabilities as well as near-term benefits. On the former, customers are becoming ever more demanding. Anytime, anywhere access, enhanced services, and a seamless experience are becoming the norm. But these require investments, and once again technology can help. Robotics process automation (RPA) and other automation tools are gaining significant traction in improving operational excellence. In our recent survey of over 25 medium and large institutions, all started exploring RPA, 57% did at least one proof of concept (PoC), and almost 20% scaled. Combine this type of rapid automation with E2E process re-engineering and harmonization and the benefits skyrocket. Cost reduction doesn’t have to be chaotic or leave firms exposed. It can be a constructive and even uplifting exercise if managed adeptly.
The Fit for Growth approach is a simple yet powerful way for firms to determine the “art of the possible”—embracing new trends and creating a more streamlined, scalable operating model that can absorb growth more efficiently and profitably. This approach can identify cost savings that range from 20% to 50% while helping companies increase revenue by 5% to 10%. Equally important, this process will leave companies with a foundation in place to support growth. For those who want to know more, we recently released a book, Fit for Growth, that lays out a framework for managing costs in a strategic way with detailed, real-world examples so that leaders across all industries can get their companies into shape—the right way.
 S&P Global Market Intelligence
 Asset Management 2020: A Brave New World – PwC, 2014