Why the asset management industry needs to reframe its purpose

The world will recover from the pandemic, but the stakeholder expectations of the future will not be the same as those of the past.

In brief

• Global asset management is at a unique moment in its evolution - decisive action is required to use COVID-19 as a catalyst for positive change.
• Delivering lasting value has never been more important for asset managers and their stakeholders.
• Firms must act now for the industry to emerge from the crisis better, stronger and with renewed purpose.

If ever there was a moment for the asset management industry to reframe its collective purpose, this is it. Now is the time for asset managers to build on the advances already made and use this moment in time as a pivotal moment. 

COVID-19 created challenges for asset management, but ultimately accelerated the tectonic shifts that were already reshaping the industry before its arrival and created new drivers of change. With the knowledge that standing still is not an option, asset managers should use this unique moment as an incentive to reframe the future of asset management by reconsidering its collective purpose. 

In our view, creating long-term value will allow the industry to strengthen its performance while elevating its purpose. At EY, we believe long-term value should be measured through four lenses: clients, talent, society and financials. Creating value from each of these perspectives should be the benchmark of sustainable success for asset managers:

1) Long-term value through the lens of clients

Let’s begin with clients, who are increasingly questioning the value for money delivered by asset management. The industry must deliver solutions to client needs, which requires a better framework to measure client satisfaction and perceptions of value. Asset managers must exercise their fiduciary responsibilities with transparency, communicating openly and honestly. Trust will be built by upholding the highest ethical standards and meeting expectations time after time.

2) Long-term value through the lens of talent

Turning to talent, people are at the heart of asset management. The industry should aspire to set the gold standard for talent management, developing a resource pool that’s diverse in every sense, an inclusive and equality-driven culture, and incentive structures that remunerate people for doing the right thing.

3) Long-term value through the lens of society

Asset managers also need to deliver a wider range of benefits to society as a whole. Creating greater value for existing client groups is not enough when only a small percentage of the world’s population participate in long-term investing. The industry must strive to democratize investing, offering near-zero-fee products and allowing a far wider constituency to share in the growth of capital markets. That will require working with governments and other partners to engage and educate a much broader client base. If it can serve the many and not the few, delivering accessible education and guidance, the industry will achieve material gains in global financial literacy.

We believe the industry should take this chance to rethink its future and elevate its purpose, which will ultimately strengthen its performance, measured through the lenses of long-term value.

The second key area of social value comes from sustainability, which should become the new standard for investing. This is not just about responding to climate change, which will drive a global repricing of risks and assets, or other environmental harms. The events of 2020 have shown that companies’ impact on society is becoming equally important to investors. Asset managers need to integrate best practices in governance, transparency, stewardship, diversity, inclusion and equality into all their processes. In doing so, the industry has an opportunity to act as a role model, providing a template of sustainability for the companies in which it invests.

4) Long-term value through the lens of financials and shareholders

Lastly, continued stakeholder demand for lower fees means that the financial pressure on asset managers will continue unabated. There is still plenty to do to optimize the industry’s financial performance, and we believe six strategic components hold the key to creating technology-enabled business models that will deliver stronger growth at lower cost.

You can explore the EY multitrack success strategy for asset managers in the graphic below. Select a track to reveal the underlying components:

In the longer term, the solution to the industry’s challenges may require a fundamental restructuring of the entire value chain. Scenario planning and future-back thinking can help asset managers to start preparing for this now.

In conclusion, delivering long-term value has never been more critical for the asset management industry and its stakeholders. The world will get through the COVID-19 crisis and economies will recover. The world needs effective asset management, but the needs of the future will not be the same as those of the past. We need to ensure we don’t squander this opportunity to elevate the purpose of asset management, thereby delivering greater benefits and long-term value to investors and society.