Since the beginning of the year, we’ve talked to several of the largest institutional asset management firms, and there’s no doubt these are challenging times for these businesses. What we see is their battles with shrinking margins in the face of diminished capital market outlooks, escalating client demands for price transparency, and an explosion of new competitors. In fact, a new report from Boston Consulting Group – the latest in a string of analyst reports* about the growing pressures on the industry – puts it in pretty blunt terms:
“In an environment of uncertain market growth, weak net inflows, and diminishing fees, it will be impossible for all asset managers to thrive. In our view, success will be limited to organizations that earn advantage through innovation and excellence in managing their entire portfolio of businesses.”
What we have found, and what BCG verifies in their report, is that the organizations best positioned to thrive in the shifting reality of their world will be “those that fully embrace advances in data and analytics to achieve superior investment performance. They will excel at structuring solutions and invent compelling client service while keeping costs under control.”
BCG’s emphasis on data and analytics as central to asset management’s future is, in my not-so-humble-opinion, dead-on accurate. But it misses a critical point. As crucial as those drivers are for improving the performance of investment portfolios, their value extends far beyond that.
New approaches to data and analytics can help asset management companies create truly game-changing value from a massively under-utilized asset that’s right under their noses – client relationship data.
For forward-looking asset management firms, the good news is that getting a better handle on client data can deliver not only impressive operational efficiencies but also strategic gains and insights that can make all the difference as the competition gets tougher every day.
The even better news, and perhaps what’s surprising, is that it can do so without requiring a large investment in big data technologies or the long-drawn-out construction of huge data lakes. What we know is that small sets of highly accurate, highly targeted data can do the job.
Client data: lost in the circles and cul-de-sacs
For an industry that lives or dies by the quality of its information, I still find it a bit startling that client data processes at many asset management companies are still largely manual and ad hoc. Much of the information that asset managers could be used to upsell their offerings or provide dazzling client service is locked within client contract documents, where it’s largely invisible to the teams responsible for day-to-day client interactions as well as strategic decision-makers. While a shared drive or document repository system may be in place, the default method for retrieving and organizing the data is usually via spreadsheets – and more spreadsheets.
The sheer complexity of many contracts, especially for the highly-negotiated institutional agreements that are typical with the most important clients, opens space for human error. Data may be inaccurately recorded (or not recorded at all) or only sporadically updated as agreements evolve. Critical information may be fragmented across a bunch of other systems, too – billing, customer relationship management, client portals and the like. Or it may exist only as a kind of tribal knowledge, in the memory of individuals.
The upshot of this inefficiency is that asset managers strain to answer even quite basic questions:
Are we billing this client correctly?
Where have we made non-standard service or reporting commitments?
Are we in compliance with all most favored pricing?
Lacking basic answers translates into fee leakage, squandered opportunities to expand revenue, unimpressive client service, and unnecessary risk. Not to mention a lot of frustrating one-off research projects that waste time and resources.
In fact, the constant improvising and backtracking around client data projects remind me of an experience that's familiar to those of us who remember the days before GPS navigation – driving around lost in the suburbs of an unfamiliar town. It’s time to rescue client relationship data from the traffic circles and cul-de-sacs and put it on the fast road to game-changing value.
Winning ops, winning starts
At a typical institution-focused asset management business, hundreds of client data users in relationship management, client services, and finance are making thousands of decisions based on that information every day. What they need is, above all, data that are accurate and complete. It should be continually refreshed and up-to-date. And instead of being hidden in complex documents and dispersed across systems that don’t talk to each other very well, it should be unified and easily available in the business systems that people use every day.
The immediate operational benefits of this more comprehensive approach can be very substantial. Instead of tackling questions one by one as they come up – ignoring adjacencies until they get loaded into the next set of spreadsheets – you can get the answers you need on the fly. A negotiation team needs some historical contract data to hammer out a better deal? It’s right there at their fingertips. The C-Suite needs to know the average price point for a given product across a client portfolio? You can pull it up easily. You can bring a new level of efficiency to client-focused processes such as onboarding and resolution/response. Client-facing teams can spend less time chasing information, and more time building relationships.
Those operational and tactical gains quickly broaden out into strategic insights with deep implications for revenue and growth. A case in point: many asset managers lose millions each year through fee leakage alone. You can eliminate under-billing by ensuring that fee schedules are set up correctly and updated as they change, and by checking that negotiated fees correlate with actual billing.
Do you want to improve a client’s AUM? Providing white-glove customer service leveraging global visibility into client commitments and service obligations is a great start. So is responding quickly to new client requests and being proactive in addressing their SLA needs. And beyond that, having deep insight into customer relationships means you can design more customized products and services. In short, you can build the kind of excellent client service and a targeted product portfolio that will ensure that a client won’t be tempted to take flight just to save a few hundredths of a percentage point in fees.
The massive waste of time and money caused by inefficiencies in managing client data has always been a drag on profitability in the industry. In an expansive environment, it was all too easy for the wastefulness to be overlooked or ignored. But faced with today’s shrinking margins, asset managers can no longer tolerate unnecessary expense and inadequate returns from one of their most valuable proprietary data assets.
Why small is beautiful: the power of precise, targeted data
The data sets that generate this kind of insight don’t have to be huge; in fact, they shouldn’t be. You don’t need “big” data – you need smaller sets of highly accurate, highly targeted data. I realize this goes somewhat against an approach that's quite popular these days, along with the lines of "just grab the data, we'll figure it out later." The data grab is usually via big data technology, and the figuring out is supposed to happen via analytics, machine learning, and artificial intelligence. But the asset managers we see achieving the most success in this area are those that recognize that it all depends on clean data – not just lots of data. If the data pool you’re working with is inaccurate or incomplete – and client relationship data tends to be both – no amount of analytics will produce the results you want.
A much more effective approach is to focus your data initiatives where they can have the biggest impact on your organization’s bottom line. As Pramata CEO Praful Saklani notes in an insideBiGDATA article, “if you have high-quality data and it's tightly focused on the goals you want to achieve, the quantity of that data becomes a lot less critical. Instead of analyzing, say, a thousand items of information across a million customers, you can look at five or six items across 100,000 customers, and still get stellar results.”
Asset management organizations can leverage client relationship data to uncover fresh sources of value; they just have to understand how.
The first step is to understand that the acquisition and maintenance of client relationship data is a strategic, competitive issue that impacts profit, risk and enterprise value. It calls for a comprehensive, enterprise-wide approach that’s in complete contrast to today’s fragmented, case-by-case treatment.
CFOs and Client Services Directors are perfectly positioned to lead the initiative. They can start by diving into client relationship streams to understand where the business is feeling the pain of missing or unusable data. Is the organization struggling with the complexities of fee schedule management? Hampered by low visibility into custom client service commitments? Straining to manage clients’ investment criteria efficiently? It’s worth spending some time to identify the areas where a client relationship solution can deliver the biggest impact.
Next, estimate the loss associated with each specific pain point. Let’s say you want to eliminate misbilling of clients. What’s the quantified value associated with that? Or you want better insight into non-standard commitments. What’s the dollar value of that regarding reducing one-off projects? Increasing client contact time? You may be surprised at how quickly the numbers stack up into very significant returns.
Now you’re ready to choose the technology and process changes you need to curate client data for each pain point. Look for the most practical, achievable and valuable approach, and keep in mind that when it comes to client data, bigger is not better. Do you want to pull together a thousand pieces of data about 10,000 clients at 80 percent accuracy? Or do you just need eight items of data about your top 2000 clients with 100 percent accuracy? The second will likely be much more achievable, and just as effective, as the first. And this is how you start to put your client data on the road to game-changing value.
Pramata can help your asset management organization tap into new sources of value hidden in its client relationship data.