Contents
2020: Crossing boundaries 3
Finding growth with markets and products 5
Creating operational efficiencies 11
Customer experience and engagement 17
2020: Thriving in new territory 21
Endnotes 22
• The pace of mergers and acquisitions (M&A) may pick up over the coming year as investment
managers look beyond their core capabilities to achieve top-line growth and extend client service
offerings.
• To expand into emerging customer segments, leading firms will likely try to resonate culturally
with their new customers, deliver through current or newly developed technology, and meet the
changing investment expectations, such as ESG (environmental, social, and governance)
principles, of these new segments.
• Private equity (PE) firms have started adopting alternative data for sourcing deals and conducting
due diligence, following hedge fund and long-only managers.
• Adopting and using insights from alternative data sets for managing and transforming portfolio
companies can be a game changer for PE firms.
• In 2020, Deloitte expects leading investment management firms to cross the boundary from
traditional cost-efficiency projects into a save-to-transform approach, increasing competitive
advantage in the process.
KEY MESSAGES
T
2020: Crossing boundaries
HE CHANGES FACING many investment
management firms are significant. Internally,
long-standing operating models may need
transformation to keep up with the competition, and
digital-enabled customization is becoming a client
expectation. Externally, firms may discover finding
investors in new demographic segments or geographies
is the most effective path to asset growth. Investors are
adjusting their portfolio allocations in search of total
return. In the retail market, this adjustment includes an
expanding eye toward alternative investments.
Consequently, many boards of directors of public firms
with investment management capabilities are looking
for new leadership they believe are better suited to
deliver results in an increasingly dynamic and complex
industry landscape. CEO turnover has been rising
recently, with at least 37 US and European investment
managers changing CEOs from 2017 to August
A quick glance at the asset growth in the investment
management industry over the past nine years shows
steady growth—a sign of health and stability. However,
the details seem to tell a more complicated story. The
mix of investments has changed dramatically over the
past 10 years (figure 1). Passive funds are now the
largest portion of the total US fund assets, as asset
growth has followed performance. Passive funds have
outperformed active funds on average, with the
exception of PE, which has outperformed and grown
assets steadily over the past nine years (figure 1), even
with regular PE fund liquidations. These shifts coincide
with an interesting global economic backdrop. While
the US economy continues its record expansion, major
countries in Europe may already be in recession, and
China’s growth slowdown is likely to A
Brexit deal adds to the confusion, with investment
managers executing their contingency plans.
European regulators and
Externally, firms may discover finding
investors in new demographic segments or
geographies is the most effective path to
asset growth.
investment hubs in Luxembourg,
Dublin, Frankfurt, and Paris also
continue to work on a smooth Brexit
transition for investment
In spite of the overall steady
In 2020, many investment management firms are highly
motivated to cross boundaries in search of profitable
growth. Crossing boundaries often means leaving the
comfort zone and performing new activities or doing
standard activities in dramatically new ways. Success
can be found crossing boundaries with purpose: by
modernizing business operations and by upgrading
technology infrastructure to reimagine growth,
operational efficiencies, and client experiences. All
these changes are intended to delight investors with
revitalized capabilities.
industry growth, the pressures faced by long-only
investment managers, PE managers, and hedge funds
have remained constant for the past several years. The
cumulative effect of fee pressure, a shift to passive
investments, and concentration of success in gathering
assets is driving many firms to continue to take bolder
actions to find growth, operate efficiently, and engage
customers. In 2020, many alternative and long-only
investment managers alike could cross boundaries and
leave their comfort zones.
$
$
$
$
FIGURE 1
Over the last decade, assets have moved into passive funds while private equity
continues to outperform
US funds asset growth and performance, 2009–18
US passive funds US private capital US active funds North American hedge funds
Performance CAGR
16%
14%
12%
10%
8%
6%
4%
2%
0%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Assets under management CAGR
Methodology for performance and AUM chart:
1. US passive funds: Passive domestic funds comprise AUMs for 1940 Act Index ETFs (domestic and global equity, bonds, and commodity)
and index mutual funds (domestic and global equity, and hybrid and bond) sourced from ICI Factbook 2019. S&P 500 Index has been used as
the proxy for passive fund performance. S&P 500 Index returns have been sourced from one-year performance for S&P 500 provided in
SPIVA Year-End US Scorecard reports for the years 2009–2018.
2. US active funds: Active domestic AUM comprises actively managed mutual funds (domestic and global equity, and hybrid and bond) and
1940 Act Actively Managed ETFs sourced from ICI Factbook 2019. US Domestic Active Funds
(Equal-Weighted) returns have been sourced from one-year performance for all domestic funds provided in SPIVA Year-End US
Scorecard reports for the years 2009–2018.
3. US private capital: US private capital AUM and performance data has been sourced from Preqin. AUM is the sum of unrealized value
and dry powder. Performance looks at one-year rolling returns.
4. North American hedge funds: North American hedge funds AUM and performance data has been sourced from Eurekahedge North
American Funds Key Trends March 2019 report. Hedge fund performance represents Eurekahedge North American Hedge Fund Index
return, which is an equally weighted index of 536 constituent funds.
Note: The size of the bubble indicates 2018 AUM of the asset class in US$ trillions. Sources:
ICI Factbook 2019, Eurekahedge, Preqin, S&P Global Market Intelligence.
Market expansion
• Improvements in data analytics and
technology
• Enhancements in customer
experience
L
Finding growth with markets
and products
AST YEAR, OUR 2019 outlook highlighted that
some firms were likely to push their boundaries
with bold actions such as being
aggressive in acquiring new capabilities and embracing
emerging technologies in search of growth. In many
ways they did. Investment management firms continue
to use M&A activity to bolt on new capabilities, while
developing emerging technologies such as artificial
intelligence (AI) and alternative data continue to be at
the forefront of strategic In 2020 the
aggressiveness is expected to progress, and significant
boundaries could be crossed, such as: PE firms fueling
growth through permanent capital pools and investment
management firms opening new market segments
through technology.
Let’s analyze growth through the lens of a two-by- two
growth matrix. The four categories are based on the
degree to which new markets or products are
developed. Using this framework, the four
quadrants are: market development, diversification,
market expansion, and product development (figure 2).
Investment management firms find different paths to
success, and many will follow
one or more that lead to growth in new areas or
through enhanced capabilities. Each quadrant of the
matrix presents different challenges to overcome.
This section digs deeper to better understand the
paths investment managers are expected to take to
find growth in 2020.
FIGURE 2
Making the right growth choices: Investment managers make their growth choices
for both the short- and long-term horizons
Market and product development growth alternatives
New
Market
Market development
• Tilt toward Asia
• Alternatives going mainstream
• Customer solutions enabled by
technology
Diversification
• Mergers and acquisitions
• Vertical integration
Product development
• Permanent capital pools
• Opportunity zone funds
• Rise of thematic funds
Current
Existing Product New
Source: Deloitte Center for Financial Services analysis.
Diversification: Offering new
products in new markets
Investment managers continue to rely on mergers and
acquisitions (M&A) to diversify product offerings and
geographic presence. Over the last five years, achieving
scale and adding new capabilities were the key
objectives for most investment manager M&A. In fact,
M&A transactions between investment managers
touched a high in Deal activity continues to
remain strong from a bolt-on capabilities perspective,
while merger-of-equals transactions are slower to
transpire. Even when M&A are the right strategic choice
for both firms, desired results are often not achieved due
to suboptimal postmerger From a
geographic diversification perspective, most European
firms
have been looking to expand into Asia, while many US-
based investment managers have focused on increasing
their presence in both Europe and Asia. Firms in North
America and Europe account for 80 percent of M&A
activity within the investment management industry
and are driving continued high levels of activity (figure
3). This trend highlights the importance of inorganic
growth in these mature markets to boost scale and
broaden product lines into new asset
Brookfield Asset Management’s recent acquisition of a
majority stake in Oaktree Capital Management to create
an alternative giant is a good example. The combined
business is expected to have US$475 billion in AUM,
offering a diversified suite of private investments
including debt, equity, infrastructure, and real estate
FIGURE 3
The need for scale is clearly visible in North America, which accounts for half
of the entire or majority stake acquisition deals for investment managers in 2019
Investment management industry M&A activity by geography, number of M&A deals
North America Europe Asia Australia RoW
2014
2015
2016
2017
2018
2018*
2019*
* Indicates deals through July of each year.
244
6
4
272
394
449
478
475
476
Note: RoW (rest of world) includes South America and Africa.
Source: Deloitte Center for Financial Services analysis of M&A data sourced from S&P Global Market Intelligence.
164
117
142854134
142552171214
213081136
2981
1153150 19216
2360191 19182
2459174 29192
11
M&A activity in the industry permeates the entire
investment management ecosystem. Firms are striving
to integrate vertically and to offer clients solutions
across the investment value chain, from financial data to
advisory services and alternative investments. These
“value chain” mergers may unlock growth for
investment managers through the development of a
vertically integrated portfolio of services. Principal
Financial obtained institutional trust and custody service
offerings for the nonretirement market through its
acquisition of Wells Fargo’s Institutional Retirement
and Trust business. Principal Financial also used the
transaction to attain scale by doubling the size of its US
retirement business and to bring on key industry
Value chain M&A will likely increase over the coming
year as firms expand client service offerings and
geographical footprint.
Firms are striving to integrate
vertically and to offer clients
and executing with excellence on the postmerger
integration plan will likely differentiate the
exceptional firms taking this approach.
Market development:
Bringing existing products and
services to new investors
Finding new markets and investors for existing
products is an important component of profitable
growth for investment management firms.
Investment managers can find new market
opportunities by exploring new geographies,
scanning (or driving) regulatory changes, and by
deploying new technologies.
Asia is one such target for investment managers.
Major demographic shifts are
taking place in the region, which
accounts for 62 percent of the
world’s millennials as well as
solutions across the investment value
chain, from financial data to advisory
services and alternative investments.
63 percent of the world’s aging
workforce (aged between 50 and 60
years as of 2019).13 Investment
managers, including PE firms, are
aiming to provide investment
solutions for these two varied
WINNING THROUGH
DIVERSIFICATION
M&A can be a strong path to immediately achieving
scale and serving new clients, but they are not a
Often when investment management M&A
fail to achieve the expected value, it can be attributed
to integration When front, middle, and back
offices are spread across geographies, managing
integration across culture, talent, and technology is
difficult. Some firms will likely implement an
integration management office (IMO) to develop a
clear integration plan and control the information flow
between workstreams and senior
Thoughtful planning for M&A integration that begins
in the transaction phase will emerge as a leading
practice in 2020. Selecting the right strategic partners
to fulfill growth requirements
investor segments. The estimated opportunity for public
funds in China will surpass US$ trillion AUM in
The regulatory climate for investment
management firms to enter China improved several
times over However, the region’s diversity tends
to pose unique challenges for foreign investment
management firms, including cultural, economic,
geopolitical, and regulatory risk. This emerging
customer segment in Asia paints a picture of the
challenges that come with enormous growth potential.
On the regulatory front, supporting capital formation,
innovation, and levelling the playing field between
large and small investment advisers is a focus. In
addition, allowing retail investors to gain access to
alternative investments is a market
FIGURE 4
Asian millennials and aging workforce present a market development
opportunity for investment managers
Global population by geographic region, 2019
North America Europe Asia Australia RoW
<1%
Note: RoW includes South America and Africa. Aging workforce population: between 50 to 60 years old. Percentages may not total 100
percent due to rounding.
Sources: Deloitte Center for Financial Services analysis of population data from United Nations, Department of Economic and Social
Affairs, Population Division (2019). World Population Prospects 2019, Online Edition. Rev. 1, made available under the Creative
Commons license (accessed on October 1, 2019).
development opportunity. In December 2018, investment
management firms and industry representatives met with
the US Securities and Exchange Commission (SEC) to
explore this option, and a few months later,16 the SEC
requested public comment on the These
changes involve creation or revisions to definitions of
accredited investors, financial thresholds for investing in
private funds, and restrictions on business development
companies. For example, Vanguard has expanded access
to retail investors in its Alternative Strategies Fund by
lowering the minimum investment amount from
US$250,000
to US$50, Ultimately, this move may drive
change in asset allocation on a huge scale and could
have implications on the liquidity, risk, and return
objectives for millions of retail investors. However,
before alternative assets are readily available in
401(K) accounts or have greater penetration into retail
investor segments, regulators will likely ask for
controls to mitigate risk and for reliable liquidity
solutions through secondary markets or other liquidity
methods.
Technology can be used to develop solutions that
address the liquidity and control concerns of embedding
alternative investments in portfolios across varied client
segments. A US-based invest- tech firm has built a
technology platform that provides high-net-worth
clients with access to alternative The
modular platform supports the subscription,
administration, and reporting processes for private
equity, private credit, hedge funds, and other alternative
Platforms, coupled with investment
advice and risk controls, may be important ingredients
in a coming change that opens access to alternative
investments.
WINNING THROUGH
MARKET
DEVELOPMENT
Creative marketing approaches to build appeal of
existing products for new investor segments, either
geographically, demographically, or both, typically
depend on first developing a deep understanding of the
needs and motivations of the new target markets. Only
then can existing products and services be positioned
ideally within the segments.
15% 63%
<1%
9%
Aging workforce
TOTAL POPULATION:
BILLION
13%
22% 62%
7% Millennials
TOTAL
POPULATION:
BILLION9%
The cultural differences between many of these
emerging investor segments are stark compared to the
traditional customers. Leading firms will likely resonate
culturally, deliver through current or newly developed
technology, and meet the changing investment
expectations, such as ESG principles, of these new
segments. What is needed to win here goes well beyond
new packaging and a catchy marketing slogan. Also,
the long view may be a required approach, as some
firms are already targeting investor segments—well
before they have profitable levels of investable assets—
with the knowledge that wealth flows both
geographically and generationally over time.
Product development:
Creating new products
for existing markets
Many investment managers are crossing traditional
industry boundaries to develop new products and
reimagine others. Change is being seen across different
product categories, from mutual funds and ETFs to
alternatives. In the mutual fund and ETF category,
products focusing on sustainability, market volatility,
and megatrends are being launched. These new funds
are a significant departure from funds defined by
investment market capitalization, growth or value
orientation, and geographic region. The new approach
seems to resonate with most investor goals and
emotions. In Europe, 168 new sustainable funds were
launched in the first half of 2019, on track to exceed 305
sustainable offerings introduced last Rising
investor demand drove net flows into sustainable funds,
pushing assets in Europe to a record 595 billion euros
(more than US$656 billion).22 Regulatory developments
in the European Union (EU) such as the creation of a
standard ESG taxonomy and ESG-specific benchmarks
may drive the growth of sustainable funds further. Fund
houses are also launching thematic funds to provide
investors with exposure to short- and long- term themes.
In light of the recent market
turbulence and the length of the bull market, some firms
are launching ETFs that provide investors downside
protection, although the funds limit the potential
Additionally, new megatrend funds focused
on global challenges including urbanization, health
care, and technology disruption have also recently been
These thematic approaches may draw a
stronger connection with investors in 2020 than some
previous classification systems, such as large cap value,
which are devoid of emotional connection.
Shifting to alternatives, many PE firms are looking at
increasing their permanent capital assets, creating
products similar to closed-end mutual The
recent resurgence in business development companies
(BDCs) embodies this shift to permanent capital
structures and debt markets. Due to proposed regulatory
changes in fee reporting, the popularity of BDCs is
likely to continue to Additionally, a new
investment category, opportunity zone funds, targets
more than US$2 trillion in assets through tax relief on
unrealized These funds may enable investors to
write off capital gains taxes, provided the holding period
of an investment in a designated opportunity zone
exceeds 10 Some investment managers and PE
firms have already begun investing or raising funds to
invest in these opportunity zone The search for
growth by PE firms is finding value in new structures
and is unrestrained by asset class.
WINNING THROUGH
PRODUCT
DEVELOPMENT
The needs of existing customers can change as their
financial circumstances and opportunities in the market
change. Offering new products to these existing, but
evolving, customers is typically an important growth
strategy. Leading firms that take this approach will
likely have exceptional insights into their customers’
evolving needs and personal circumstances. They may
also have the ability to develop new products that are
tailored to realize the benefits from both regulatory-
driven change
and from market opportunities. Firms that excel will
likely embrace cannibalization of existing products to
optimize the growth potential of new launches, rather
than cede the new developments to faster-moving
competition. This approach will likely reward not just a
ramped-up product management operation, but a
change-oriented one.
Offering new products to
existing, but evolving,
customers is typically an
important growth strategy.
Market expansion: Finding
new growth with existing
products and markets
Many existing active portfolios have fallen short in their
effort to provide alpha. On average, active portfolio
performance has trailed passive counterparts for the past
nine years, and the gap appears to be For
these products, and active management as a whole, to
turn the tide, they need credible revitalization of their
investment processes. While there are many paths to
revitalization, let’s look at one popular approach many
firms are considering: the combination of AI algorithms
and access to alternative data sets.
AI and alternative data have been used by many
investment managers to augment investment decision
processes. Even PE firms, which typically have long-
term strategies, have started adopting alternative data
for sourcing deals and conducting due diligence,
following hedge fund and long-only managers.
Adopting and using insights from alternative data sets
for managing and transforming portfolio companies
can be a game changer for many PE firms. Alternative
data vendors have already come out with PE-focused
Using alternative data strategies calls for a
matching technology infrastructure, coupled
with strong data governance and quality programs, to
manage the large data sets. Typically, firms deploying
alternative data use cloud solutions that can provide both
processing power on demand and large data storage
capacity. Talent and culture are also important elements
of alternative data success, as investment management
firms bridge the gap between data science expertise and
investment savvy to realize results.
WINNING THROUGH
MARKET
EXPANSION
As a whole, active managers, other than those in PE,
have been on the losing side of the market expansion
strategy for the past decade. Index performance coupled
with low fees have surpassed the promise of alpha with a
premium brand in the eyes of many investors. In order
to win the market expansion battle, active managers
should credibly make the case that their expertise is
worth the cost. Any active manager looking to win in
their existing markets with their existing products has
this mandate, and will be asked to demonstrate it.
That’s much easier said than done, but firms with
visionary leaders have the opportunity to regain the
upper hand in this strategic territory. These firms may
also refresh their offerings by providing compelling
investment strategies with the desired portfolio
wrappers (., mutual funds, separate accounts,
collective investment trusts, ETFs, models). Many
long-only managers could offer active equity
management in an ETF wrapper
in 2020.
Finding growth in 2020
These four quadrants of strategic choices for growth are
not mutually exclusive. Many firms will pursue
approaches in multiple areas, with the objective of
combining asset growth and profit expansion.
Successful investment managers will evaluate
opportunities across product categories and markets to
deliver the optimized product, return, and service
expectations for investors.
S
Creating operational
efficiencies
HRINKING MARGINS CONTINUE to bring
daunting challenges to many firms, forcing new
actions such as outsourcing front-office
functions and increasing technology expenditures to
stay competitive. As firms transform their operations,
risk management grows in importance. The further the
departure from the old way of doing things, often the
greater the need for new policies, procedures, and
controls to manage both external risks (such as
cybersecurity) and internal
risks (such as having the right talent). In 2020,
equivalent (FTE) than the others. These results imply
that some firms are more adept at rightsizing
FIGURE 5
Successful investment managers achieve
operational effciency through greater
technology expenditures
most firms are expected to cross the boundary from
traditional cost efficiency projects into a save- to-
transform approach, increasing competitive advantage
in the process, and never losing sight of customer
expectations.
Operational transformation:
Path to greater efficiency
Profitable
growth firms
25% FIRMS
Firms with stagnant or
shrinking margins
75% FIRMS
Successful operational transformation may appear
elusive, but even so it should be attempted to achieve
profitable Firms that achieve their goals most
often transform people, processes, and technology in
Casey Quirk, a Deloitte business,
conducted a study of more than 95 investment managers
headquartered in North America, Europe, and Asia
Pacific, that shows that just 25 percent of investment
management firms surveyed are able to grow profits and
margins These successful firms
employ an elevated level of technology spend as a
percentage of revenue compared to counterparts with
shrinking margins (figure 5). The best positioned firms
also have higher revenue per full time
Source: “Investing for Growth, Performance Intelligence 2018,”
Casey Quirk, a Deloitte business, and McLagan.
ANNUALIZED REVENUE GROWTH (2015–18)
5% 2%
ANNUALIZED COST GROWTH (2015–18)
4% 5%
MARGIN (2018)
35% 31%
TECHNOLOGY SPEND AS
PERCENTAGE OF REVENUE
(2018)
9% 7%
REVENUE/FTE (2018)
$ $930K
their operations using technology and outsourcing
noncore functions than their competitors.
Successful firms in 2020 and beyond will likely
design their investment
view while executing transactions in real time. The
breakdown of these boundaries may lead investment
management firms to become less compartmentalized
and more nimble.
analysis and decision-making
process, the core investment
operating engine, to incorporate
the most recent data. These
dynamic data- driven insights can
provide portfolio managers and
analysts with investment decision
support. Finally, delivering
customized portfolio information
to investors at
“Modern and robust risk management
capabilities are growing in importance for
investment management firms because of
the roles they can play enabling strategic
growth.”
— Krissy Davis, partner, Risk & Financial Advisory,
Deloitte & Touche LLP
scale rounds out the common tenets of the successful
firms. As firms execute on these strategies, both
investment management firms and their service
providers alike recognize that many of the traditional
boundaries between front, middle, and back office are
being crossed. The recent uptick in the adoption of a
“golden copy” comprehensive, real-time investment
book of record (IBOR) illustrates the point. The golden
copy provides a real-time security position and cash
view to front-, middle-, and back-office personnel alike.
This comprehensive approach mitigates compliance
risks arising from different views of portfolio positions
and enables the firm to have a unified
With the growing adoption of digital technologies, many
firms are shifting to a “save-to-transform” mindset that
marries cost-cutting with strategic The
save-to-transform approach includes technology as a key
priority in addition to cost, growth, and talent. For
example, firms following this approach with regard to
distribution tend to invest in technologies that help reduce
distribution costs while providing innovative delivery
models that meet the growing demand for personalized
investment Similarly, firms are focusing on
implementing cognitive technologies such as AI and
machine learning and robotic process automation to
facilitate digital enablement, a key element of save-to-
The adoption of the save-to-transform
mindset by investment management firms is expected to
increase dramatically in 2020 because of the benefits
beyond traditional cost reduction strategies.
Managing risks: Winning by
not losing and crossing
boundaries confidently
Investment managers appear up to the challenge of
augmenting their risk management practices to support
operational transformation. Deloitte’s global cost survey
of executives directly involved in
OPERATIONAL TRANSFORMATION
Change business configuration—divest underperforming assets; adjust number of products/services, geographies,
customers, etc.
Implement specific automation or cognitive technologies
Outsource/offshore business processes to low-cost service providers
Increase centralization—integrate business units and functions into the corporate center
15%
14%
9%
25%
38%
45%
51%
37%
MANAGE RISKS
Streamline business processes
Streamline organization structure—increase spans of control; modify reporting relationships
Improve policy compliance
15%
12%
14%
34%
37%
40%
cost management decision-making shows that the
number of investment management firms taking steps to
control risk trails the number transforming their
operations by only a few percentage points.
The percentage of firms surveyed that are
implementing operational transformations range from
37 to 51 percent by project type, and between 34 and 40
percent for risk management–related actions (figure 6).
Leading operational transformation practices could
combine growth enablement and operational efficiency.
In today’s environment, with many firms working
overtime to achieve operational efficiencies, how well
risks are managed and mitigated can
mean the difference between success and failure.
Investment management firms are in a tight squeeze. A
single operational mistake can jeopardize a firm’s
profit and reputation, while at the same time failure to
implement true change may generate strategic risk.
This situation calls for firms to assess and modernize
the three lines of defense (LOD) as operations are
transformed.
Using Deloitte’s strategic choices framework (figure 7),
firms can enhance the three LOD on a prioritized basis to
match their overall growth strategy and their current
level of capability to manage risk.
Many firms today focus on the defensive half of the risk
strategy framework. The defensive half of the risk
management spectrum, operator and steward, enables
winning by not losing. In their role as
FIGURE 6
Investment management firms are combining operational transformation and risk
management to improve competitive advantage
In process of implementation Not implemented but planned
Source: Deloitte's 2019 Global Cost Survey.
FIGURE 7
Strategic choices framework
Source: Deloitte Risk & Financial Advisory, 2019.
stewards, chief risk officers can protect the risk functions
that cover the existing business model on a day-to-day
basis. Defense also covers the reaction to external
change. Some of these changes are driven by industry
events, such as competitor pricing changes or mergers,
and others are less rational, such as terrorism and natural
disasters.
Risk management can create plans and
contingencies for all of these risks, which help
firms react effectively and mitigate losses.
In 2020, successful firms are expected to execute on the
additive or offensive risk management playbook,
represented by the top half. The catalyst and strategist
roles of risk management enable firms to more
confidently plan for the future and execute operating
model changes. These roles
enable proactive change. For example, the catalyst
activities in risk management may identify that both
retail and institutional investors are using a higher
percentage of low-cost index investments in their
portfolios. The strategist function in risk management
has a seat at the table in formulating the response for the
firm.
Modernization of risk management is expected to go hand
in hand with operational transformation for firms crossing
boundaries to find profitable growth throughout 2020.
Robust and modern risk management practices can act as
strategic enablers for entering new markets, launching
new products, and revamping enterprise critical
processes. The results of Deloitte’s global risk
management survey indicate that risk management
modernization may
OFFENSE
DRIVING VALUE
The opportunity to use risk as an
advantage. Understand the
implications to
make strategic
decisions that lead to
a higher level of
performance.
RISKS TO THE
STRATEGY
AND MISSION
“Megatrends” that will
impact your business.
- Strategic
choices and
pathways
- Digitization
- Ecosystems
- Trade
(., Brexit, NAFTA)
- Sustainability
- Immigration
- Culture
- Financial
- Operational
- Compliance
- Third party
Risk
intelligence
- Pricing schemes
- Business model
- Product
platforms
RISKS FROM
THE
STRATEGY
The basic risks that a
compliance program
typically focuses on—
the table stakes.
- Terrorism
- Cyberattack
- Natural
disasters PROACTIVE
LY PROTECTING
VALUE
Risks that you must
respond to or you will impair
your business and
competitive position.
DEFENS
E
3%10%10%
3%13%8%
3%13%28%
23%13%8%
13%20%13%
be needed at many investment management firms (figure
8). The majority of investment management firms (60
percent) participating in the survey indicated that
cybersecurity was among the top three challenges from a
risk management perspective, likely as a result of
heightened regulatory attention. Cybersecurity has been
among the SEC’s top enforcement priorities for the last
four European financial regulators are also
focusing on cybersecurity and published joint advice in
2019 recommending legislative improvements to specify
cybersecurity requirements for financial
In the long term, the regulators have proposed to
establish a voluntary EU-wide cyber resilience testing
Increased regulatory scrutiny of the industry
to protect investors’ interests has led to regulatory and
compliance issues being ranked as the second biggest
challenge
(45 percent). The European Securities and Markets
Authority’s recommendation for quarterly liquidity stress
tests (LSTs) is one such example. European alternative
funds and undertakings for the collective investment in
transferable securities are expected to periodically run
LSTs starting on September 30,
FIGURE 8
Top risks from investment managers' perspective
Over the next two years, which are the three risk types that you believe will present the greatest challenges in
your organization’s investment management business?
Ranked No. 1 Ranked No. 2 Ranked No. 3
Cybersecurity
Regulatory/compliance
Operational Investment
Reputation
Enterprisewide crisis event
Liquidity
Cost and revenue recovery
Third party
13%
Other
23%
23%
20%
30%
45%
43%
43%
60%
3% 3%
Note: Some percentages do not total due to rounding.
Source: Global Risk Management Survey, 11th edition, Deloitte, 2019.
5%8%
13%8%
18%10%3%
23%15%23%
Another regulatory priority, operational risk, is a
significant challenge for 43 percent of firms surveyed.
There is a widespread opinion that the use of alternative
data in investment and operational processes is attracting
regulatory Firms with a modern risk
management framework are likely to adapt their processes
and controls to manage the new risks that using
alternative data carries. This example highlights how risk
management can be a strategic enabler, and a partner for
growth, when the risk management approach is modern
and robust.
The firms that are expected to be most efficient in
2030 are planting the seeds today that will help them
to be successful. These firms will likely have
modular operations linked through a common
framework of processing power and data. As new
markets, products, and processes are developed,
automated operational transformation technology can
connect the various people, process, and technology
layers to model the operation. At the same time, they
can implement algorithms to monitor risks and record
operational results. In this future world, risk
management should be baked into operations with the
same level of depth as human resources or finance.
Further, risk management should be used to drive new
developments to the same extent it is used to protect
existing operations. Firms will likely realize that failure
to change is as risky and detrimental as making ill-
considered changes.
C
Customer experience and
engagement
ONSUMERS ACROSS THE globe are more
mobile, read more product reviews, and buy
more online than ever before. Tech-savvy
firms provide seamless digital user experience and
anticipate their needs to offer exactly what they want.
Consumers also expect similar seamless and
personalized experiences from investment
As a result, customer experience (CX) has become an
important factor in the evaluation of investment
managers by their customers.
According to a survey of retail and institutional
investors conducted by Casey Quirk, a Deloitte
business, 76 percent of participants stated CX was
a contributing factor to manager In a
world where performance is not the only contributor to
differentiation, creating a delightful CX at every
touchpoint can help firms retain customer assets—and it
is within every organization’s capability. In order to do
so, however, CX needs to be a strategic priority for firms
to cross the boundary from siloed approaches to a truly
holistic customer-centric enterprisewide solution. As
investment managers work to improve CX, they can
focus on seven common drivers of investment
management CX (figure 9). These drivers are based on
the perspectives gained
FIGURE 9
Client experience incorporates attitude and capability
DOING THE BASICS WELL
- Timeliness, accuracy, and quality of reporting
- Accessibility of information and data
- Coordination across client touchpoints
PARTNERSHIP APPROACH
- Offering solutions and bespoke relationships
- Strategic (broad) partnership
- Manager-client knowledge transfer
OPERATIONAL FRICTION
- Speed of operations
- Accuracy of operations
ATTENTIVENESS
- Responding to data/information
requests quickly
- Proactively sharing data/information
- Resolving issues quickly
Seven drivers
of investment
management client
experience
KNOW ME
CLARITY OF PURPOSE
AND
COMMUNICATION
- Explanation of porfolios,
products, and processes
- Articulation of edge or point of
differentiation
- Transparency of fee structure
LONG-TERMISM
- Sales approach
- Longevity of client-manager
relationships
- Transparency of relationship
- Know my end investors (and show me)
- Know my business (and show me)
- Senior-level client-manager relationships
Source: Engaging the whole firm: Improving client experience in institutional and wholesale investment management, Deloitte LLP,
2019.
through more than a dozen in-depth interviews with
clients of investment management firms in the United
Kingdom (including wealth managers, insurers, and
pension funds).45
seamless onboarding In many
applications, these platforms have reduced the
onboarding time from weeks to days and often
support image- or video-based biometric
Let’s take a closer look at two
important elements of the
customer life cycle, client
onboarding and reporting, and
highlight the drivers impacting
the onboarding and reporting
experience in the coming year.
Centralized data storage can prevent
clients from becoming frustrated and
improve application conversion rates.
authentication and
Client onboarding: From
drag to delight
The client onboarding process at many investment
management firms is cumbersome and can rob firms of
the opportunity to create a positive first impression.
Typically, the onboarding process is inefficient, time-
consuming, and requires filling out forms manually as a
result of operational friction from legacy
Additionally, the manner in which client data is collected
and stored within the organization can further deteriorate
the onboarding experience. Potential clients may be
requested to provide the same information multiple times
due to lack of coordination across client touchpoints, and
some clients may abandon the process. Centralized data
storage can prevent clients from becoming frustrated and
improve application conversion rates.
Today’s customers expect a faster and smoother
onboarding experience delivered through digital
channels. In 2020, many leading investment managers
will likely leverage advanced technologies to respond to
rising customer expectations and to reduce the potential
for operational friction (figure 9). These expectations
are being shaped by other financial services sectors that
have deployed digital platforms for a more
Delighting clients by streamlining the onboarding
process may not only drive competitive advantage, but
can also lay the foundation of a long-term relationship.
Danish online trading firm Saxo Bank and Allianz
Global Investors are each making headway to improve
the onboarding process. Saxo Bank built a digital client
onboarding tool that utilizes robotic process automation
(RPA) to enable clients to fund their account within one
hour of application. RPA enhances the integration of
data from multiple sources to speed up the client
identification process. By reducing operational friction,
the innovative process led to a record 18,000 clients
onboarded in April, twelve times the typical monthly
Allianz Global Investors has also taken steps
to enhance the client experience from the very beginning
of the relationship by employing a “know me” approach
(figure 9). The firm eliminated the distinction between
its direct sales and client service teams and formed one
relationship management group. This model enables
deeper relationships because it can provide the client
continuity with a single point of contact from the
On the institutional front, where client relationships can
be more complex, client onboarding is typically just as
important. Client portfolio customization requirements
recorded through the proposal stage may need to be
operationalized. Seamlessness is important to meet client
expectations. Internally, a
fully streamlined onboarding process can also help
accurately price services. Particular customer
requirements may be predictably expensive to follow. In
these cases, integrated onboarding processes can enhance
the customer experience while at the same time protect
the operating margin by modeling client profitability
beginning in the proposal stage. Improvements in client
experience can be achieved through development of
technology, processes, and people, depending on the
existing strengths of the firm.
Prioritizing these drivers can have a material positive
impact on the overall onboarding experience. The
technologies deployed to improve these processes are
mature, and the technology- leader cost penalties are
correspondingly diminishing.
Meeting evolving client reporting
and communication expectations
Once onboarding is complete, ongoing communication is
a central component of the customer relationship. Client
reporting, in its multiple forms and channels, plays a
very important role in building the manager-client
relationship, and expectations continue to evolve. Clients
often demand more complex and frequent information
about their investments and markets. They want
personalized information delivered through digital
channels with the tools to perform customized data
analyses at their fingertips. The traditional approach of
standard portfolio reporting using emails of static
documents or hard copies may have an adverse impact
on the overall CX.
The disconnect between client expectations for custom
reporting and what is actually delivered presents
investment managers with an opportunity to set
themselves apart. According to a survey of 100 Europe-
and North America–based buy-side
firms, only 12 percent use customization more than half
of the time for client One way to offer a user-
oriented CX is to provide clients with digital tools to
generate custom reports about portfolio performance
and capital markets.
More innovation in digitized client reports may be just
around the corner. After three years in development,
Schroders is close to achieving its vision of the next-
generation reporting: a mobile- enabled, interactive,
customizable digital Other firms are also
taking this path, and client communication is expected
to be customizable at scale—becoming an important
component of CX differentiation.
More innovation in
digitalized client reports
may be just around the
corner.
Firms making the transition from static hard copy and
PDF reporting to digital interactive reporting face
challenges more pressing than the previous reporting
developments. The first challenge is with end-to-end
security and a second challenge is data integrity. The
data being accessed is highly sensitive to both the client
and the investment management firm. The firm’s
intellectual property is on display in the context of the
client’s financial holdings.
Additionally, the reputational risk of a breach of this
information may prove devastating. As a result, firms are
prioritizing end-to-end security.
Responding promptly to clients’ requests for data
and information can go a long way in strengthening
the manager-client relationship.
Therefore, a single “golden source” of information may
be a prerequisite for client-directed custom reports. For
custom reporting, some data is calculated rather than
stored. In these instances, the calculation methods are
context-dependent; for
example, performance reporting may differ from
regulatory reporting. The transformation to interactive
digital reporting gives clients access to data at their
fingertips, which increases the importance of data
structure, labeling, and accuracy. Building in quality
controls is an essential practice when the client is
driving the process. Without these strong controls, the
firm may expose itself to reputational risk.
By 2030, two important aspects of CX are expected to
definitely change. The technology available to serve
customers should advance dramatically, since the rate
of technological advancement is
accelerating. The customers being served represent the
second change. In 2030, millennials will likely be well
on their way to becoming the age segment with the
largest investable wealth, and they will be working in
decision-making roles in client firms.
Millennials are expected to soon be setting the
expectations for both retail and institutional client
service. With these changes on their way, the standard
for excellence in customer experience today could be
outdated in 2030. Firms that fail to make progress on
all seven drivers of customer experience could lose
ground to both competitors and customer expectations.
L
2020: Thriving in new territory
AST YEAR, MOUNTING pressures on
profitability caused investment management
firms to push boundaries in search of
innovative growth solutions. In 2020, the battle for
profitable growth is more likely to intensify than
dissipate. Investment management firms that develop
and execute upon strategies that not only push the
boundaries but cross them will likely lead the pack.
Even strategies to grow in current markets with current
products require
revitalization. Firms that have command of data and
processing and keep client relationships at the forefront
as they seek to expand their business, run operations
with a “save-to-transform” mindset, and delight
customers may attract a greater share of asset inflows.
Even though
risks abound in current market conditions,
opportunities for growth exist for those who
embrace a holistic approach.
Endnotes
1. Suzy Waite, Annie Massa, and Christopher Cannon, “Asset managers with $74 trillion on brink of historic shakeout,”
Bloomberg, August 8, 2019.
2. Daniel Bachman and Rumki Majumdar, United States economic forecast—3rd quarter 2019, Deloitte Insights, September 17,
2019.
3. Joe Mcgrath, “Europe warns fund groups to pick up the pace on Brexit planning,” Portfolio Adviser, September 26, 2019.
4. Baber Din, Varsha Dadlani, and Joel Peirson-Hagger, “Managing M&A integrations: A guide for investment and wealth
managers,” Performance, September 2019.
5. Matthew J. Baker, Jeannette Martin, and Jeffrey B. Stakel, More perfect unions: Integrating to add value in asset management
M&A, Casey Quirk, a Deloitte business, 2019.
6. Ibid.
7. Analysis of M&A data sourced from SNL database.
8. Joshua Franklin and Debroop Roy, “Brookfield to buy most of Oaktree to build juggernaut to rival Blackstone,” Reuters,
March 13, 2019.
9. Rebecca Moore, “Principal, Wells Fargo combination to provide broader range of services,” Plan Sponsor, July 1, 2019.
10. Waite, Massa, Cannon, “Asset managers with $74 trillion on brink of historic shakeout.”
11. Din, Dadlani, and Peirson-Hagger, “Managing M&A integrations.”
12. Ibid.
13. Deloitte Center for Financial Services analysis of population data from United Nations, Department of Economic and Social
Affairs, Population Division (2019). World Population Prospects 2019, Online Edition. Rev. 1, made available under the
Creative Commons license (accessed on October 1, 2019).
14. Doug Dannemiller, “China’s Investment Management Opportunity,” Deloitte, November 2019.
15. Evelyn Cheng, “Amid trade war, China moves to remove limits on foreign ownership in the financial industry,” CNBC,
October 14, 2019.
16. Jason Mulvihill, “Expanding private offerings—Potential areas of focus,” concept release, American Investment Council,
January 31, 2019.
17. Benjamin Bain, “Hedge funds for everyone: SEC ponders letting in the not-so-rich,” Bloomberg, June 19, 2019.
18. Vanguard, “Vanguard opens Dividend Growth Fund,” press release, August 2019.
19. Iris Dorbian, “Carlyle invests in iCapital,” PE Hub, November 8, 2018.
20. Ibid.
21. Joe Mcgrath, “ESG frenzy: Sustainable fund launches surge in H1,” Expert Investor Europe, August 14, 2019.
22. Ibid.
23. Asjylyn Loder, “Low-volatility and ‘buffer’ ETFs draw billions amid jitters over market swings,” Wall Street Journal, May 28,
2019.
24. Jonathan Boyd, “Thematic funds unveiled by Schroders,” Investment Europe, September 12, 2019; Ridhima Sharma, “BNY
Mellon IM expands thematic offering with digital assets fund,” Investment Europe, September 12, 2019.
25. Miriam Gottfried, “Private-equity firms create funds that are built to last,” Wall Street Journal, January 1, 2019.
26. US Securities and Exchange Commission (SEC), “SEC proposes rule changes for fund of funds arrangements,” press release,
December 19, 2018.
27. Paul R. Herman, “Amid a crisis of inequality, $2 trillion of tax-free investing in Opportunity Zones could benefit both rich and
poor,” CNBC, May 6, 2019.
28. Alicia McElhaney, “Is anyone actually investing in Opportunity Zone funds?,” Institutional Investor, May 23, 2019.
29. Gillian Tan, “Brookfield plans to launch fund investing in low-income communities,” Bloomberg, April 30, 2019.
30. Data sourced from S&P Global Market Intelligence.
31. Business Wire, “Eagle Alpha launches alternative data solution for private equity,” press release, June 21, 2019.
32. Omar Aguilar and Faisal Shaikh, “Save-to-transform as a catalyst for embracing digital disruption: 2019 Global Cost Survey,”
Deloitte, accessed October 30, 2019.
33. Jesse Bonanno and Jared Goldstein, Ahead of the curve: Forward-looking solutions for tomorrow’s leading asset management
firms, Deloitte, 2018.
34. Casey Quirk, a Deloitte business, and McLagan, Investing for growth: Performance intelligence 2018, 2017.
35. Aguilar and Shaikh, “Global Cost Survey 2019.”
36. Ibid.
37. DCFS analysis of investment management companies’ data from Deloitte’s Global Cost Survey 2019.
38. Kari M. Rollins and Sarah E. Aberg (of Sheppard Mullin Richter & Hampton), “SEC to focus on cybersecurity in 2019,”
National Law Review, March 27, 2019.
39. European Securities and Markets Authority, “ESAs publish joint advice on information and communication technology
risk management and cybersecurity,” April 10, 2019.
40. Ibid.
41. European Securities and Markets Authority, Guidelines on liquidity stress testing in UCITS and AIFs, September 2, 2019.
42. Meghan Morris and Bradley Saacks, “Hedge funds are spending billions to get an edge through access to satellite images and
credit-card transactions. Now they fear a crackdown’s coming,” Business Insider, February 7, 2019.
43. Matthew J. Baker, Harry H. Datwani, and Jeffrey A. Levi, Distribution , Casey Quirk, a Deloitte business, March
2019.
44. Ibid.
45. Deloitte, Engaging the whole firm: Improving client experience in institutional and wholesale investment management,
2019.
46. Funds Europe, “Regtech: All onboard,” 2019.
47. BBVA, “BBVA will offer digital customer onboarding everywhere it operates by the end of 2019,” August 20, 2019.
48. Citigroup Inc., “Citi launches digital onboarding for institutional clients in Asia Pacific,” press release, April 11, 2019.
49. Scott Carey, “Saxo Bank reduces customer onboarding to one hour using machine learning,” Computerworld, June 3, 2019.
50. Danielle Verbrigghe, “Allianz Shakes Up Institutional Sales and Client Service Model,” Fund Fire, November 8, 2018.
51. “What is reporting costing you?” Simcorp Coric commissioned and WBR Insights, Q3 2018.
52. “Schroders ‘close’ to launching digital factsheets,” Ignites Europe, September 6, 2019.
