Insights AI, Fee Compression, and Competition Loom Large for Asset Managers

Six takeaways from the Financial Times' Future of Asset Management North America conference

DLPR's Shree Dhond, Sarah Lazarus, and Jansel Murad recently attended the Financial TimesFuture of Asset Management North America (FoAM) event in New York. The conference brings together leaders and prominent thinkers in asset management to discuss the state of the industry and where it is heading. Following are the team's top six takeaways from two days of panels and networking.

1) Firms keep talking about AI-but implementation continues to be in the early stages.

AI came up in almost every panel during this conference, but it became clear that most investment firms are still pretty far away from using it effectively. Right now, the primary use case firms are eyeing is saving time reading through research, earnings reports and other disclosures. Speakers mentioned pilot programs and many other potential uses, but few provided details or goals on exactly how they will incorporate AI within day-to-day operations. Regulations are still needed, and there is some concern around the risks involved, such as privacy, accuracy, bias, etc.

2) As competition increases, the quality and reach of distribution are becoming as important as the quality and performance of products.

There was increasing acknowledgement that developing a high-performing distribution function across investor segments and geographies is equally as important, and in some instances, more impactful than having high-quality investment products. Increased competition and the desire of many investors to work with a smaller number of managers were identified as key factors in this trend.

3) How can we evaluate the investment impact of the elections?

In a tense and polarized political atmosphere, the two-day event featured one especially relevant panel-"Reassessing risk, reward and evolving investor needs amid changing U.S. market dynamics." The speaker, Mark Makepeace of Wilshire Indexes, did a phenomenal job of explaining investor dynamics ahead the U.S. election, though interestingly, his comments on the impact of volatility differed from the perspectives shared during other panels. While Mark noted how the market is pricing in various scenarios, others maintained a "we watch the market, not politics" point of view, and seemingly downplayed just how important this year's presidential race is to the state of the global economy. From a PR perspective, it was interesting to witness different asset managers' approaches to messaging the risk associated with uncertainty in this year's tight race.

4) Mutual funds are slowly becoming less and less of a focus as new product structures aim to target a more diverse set of asset classes.

Last year, the Investment Company Institute and several asset managers at FoAM that are tilted heavily toward mutual funds gave a talk that appeared to be a defense of the mutual fund. While that sentiment still exists, it's becoming fairly obvious that asset managers are moving toward active ETFs, SMAs and CITs as their preferred structures. Mutual funds will not die out any time soon, as they remain the go-to investment in most 401(k) plans. However, there is a clear belief among many asset managers that the active versions of these products, especially in asset classes like large capitalization equities, can sometimes carry fees that are too high relative to other structures.

5) Fee compression and squeezed margins are pushing every manager to evaluate its scale, product innovation, brand, and operational costs.

Many asset management CEOs noted the rising competition and declining fees which have created "a tale of two cities" across the industry. Nearly all managers have had to deal with smaller margins, which has led to questions about overall operational costs, where to invest in growth, and how to deal with expanding technology and regulatory needs. Many managers have focused on product innovation and scale as methods to compete in the current environment. Others spoke about the need for a stronger brand as a means to stand out.

6) Quality of technology, the client user experience, the systemization of data, and the level of customization for clients are all being treated as high-priority initiatives.

This is an area our clients talk about frequently. Asset managers' costs are going up, especially around technology. Some of the questions managers are trying to answer are: how do we best mine all the data we have related to our clients and use it to provide the best client service? And at the same time, how do we keep clients' data safe in a world where data breaches are a common occurrence? Many asset managers also acknowledged that retail and wealth management clients are often very persuaded by a modern website and cutting-edge user experience, which reinforce the trust they place in a company.

We're excited to see how asset managers continue to evolve with an increasingly digitized world. As partners to the asset management industry, we continue to evaluate and develop our capabilities to match the changing needs of our clients.