Regulatory revolution

Enterprising companies are turning fresh business difficulties into advantages, utilising regulation and technology to their benefit. Here, we celebrate those making the most headway, in the Investment Management Awards 2015


The global investment management industry has come up against its fair share of difficulties recently. Shrinking investment opportunities, seismic technological shifts and emboldened regulatory restrictions are among the latest hurdles to have hit margins. However, the changed circumstances under which industry figures are expected to work have forced enterprising firms to rethink old strategies, and turn these challenges into opportunities.

For those hit hardest by this changed operating environment, survival is difficult enough an ambition, yet, as far as clients are concerned, growth remains the expectation. As a result, many firms have struggled to stay competitive, and only those with a firm handle on the market have been able to survive the storm. “Since the financial crisis began in 2008, stock markets have enjoyed a considerable bull run, GDP growth is again robust in many markets, and assets under management are on the upswing around the globe. But these gains have not translated into the amount of top and bottom line growth that wealth managers would expect based on past recoveries”, according to the latest Strategy& wealth management outlook.

Acclimatising to change
Much has been made of the extent by which investment management firms have been handicapped recently by regulation. Both governance and disclosure are more closely monitored today than they ever have been, and compliance costs are far greater today than they were prior to the financial crisis. The main difference, however, is that broad-based reforms in the immediate aftermath of the crisis are today more targeted, and the success of a great many firms depends on their ability to adapt accordingly.

“The asset management industry is struggling to cope with the regulatory reform that followed the global economic crisis. The number of rules emanating from multiple regulatory bodies is not the only obstacle managers need to surmount, dealing with the uncertainty resulting from ever-changing regulations is remarkably demanding. In addition to the multi-jurisdictional challenge, national bodies are enacting rules with extra-territorial effects”, according to a Grant Thornton report on the issue of regulation in asset management.

Regulatory pressures have done much to limit the ability of firms to realise broad-based and sustainable gains, particularly among smaller firms, for whom the costs associated with compliance have often proven too great to bear. There are others, however, whose commitment to align their strategy with regulatory reform has done much to differentiate their services from those offered by competitors, and in doing so, they have created a distinct market advantage.

“Regulators internationally are clearly pursuing certain shared agendas in their efforts to create a more stable financial system and better protect investors”, says Martin Engdal, Market Strategist at Advent Software in his predictions and outlook for 2015. “But regulation is fast moving and often ambiguous, and we should never under estimate the propensity of regulators and governments, to surprise. It is impossible to predict exactly which new rules or amendments will be coming down the line as regimes continue to evolve over the coming decades.”

The sheer volume of new regulation published in the past few years has given rise to confusion about how best to meet these requirements and how firms might benefit as a result. Yet the example shown by the winners of this year’s World Finance Investment Management Awards show that compliance can play an active role in building relationships, with both regulatory bodies and clients.

Despite the challenges associated with similar post-crisis developments, assets under management have grown by quite extraordinary degrees and the pool of global savers has grown far larger in previous years. True, this new regulatory landscape has done much to obscure some of the better opportunities lying in wait, and the transfer of wealth from the last generation to the next, alongside a string of technological advancements, has done much to raise hopes about a brighter future.

Fast-paced tech advances
The age at which wealth is created is far lower than it has been historically, and although this new generation of HNWIs is more tech-savvy than before, there is still a need for expert advise when it comes to matters of investment management. On the one hand, technology means that wealthy individuals can be both more involved and informed, however, the developments have also handed firms an advantage when it comes to streamlining their offerings.

“Asset managers have increased their technology spend year on year since the financial crisis as they have dealt tactically with the technological challenges new regulation has thrown their way, but now, in 2015 we expect to see the start of the next wave of technology spend”, said Dean Brown, Executive Director of Wealth and Asset Management in an interview with Wealth Advisor. “Legacy systems are starting to constrain managers’ growth ambitions. Managers’ creaking systems also now often represent an unacceptable level of risk. As the industry enters the next phase of the growth cycle and managers look to expand their business into new products and geographies, we expect to see much more focus in strategic spend on front office platforms and operations.”

With face-to-face interactions no longer the go-to method of contact for institutional and private clients, firms have been quick to commit to a digital agenda, so as to lower costs, strengthen ties with partners and tighten their grip on the market. Also, in an age where transparency and disclosure are more valued than ever, digital solutions have handed firms a new means of reaching, and in some instances, surpassing market expectations.

“Success in the post-crisis era will depend on offering new, more customised products to meet the needs of investors increasingly focused on capital preservation”, according to EY’s industry outlook. “Distribution channels must be more aggressively leveraged to specifically target a whole new class of tech-savvy investors, many of whom command unlimited access to more financial information and advice from their mobile devices than they could ever obtain from most financial advisors.”

The investment management industry no longer has the monopoly on market information, and technological gains mean that firms must demonstrate that their expertise is great enough to warrant the fees they ask of clients. In this new climate, more attention must be paid to the education of clients, and on realising their investment ambitions.

In place of standalone products, firms in the here and now have tended towards customised solutions, as they seek to satisfy the whims of the individual and not simply chase returns. Constant feedback from clients is therefore important, as they focus more on cementing strong relationships, and on employing technology to this end. As a consequence, industry names have grown more selective about who they choose to conduct business with, as the less wealthy among them are without the capital to warrant this highly customised approach.

The World Finance Investment Management Awards highlight the best parts of the industry and shine a light on those responsible for the most impressive developments. Though the obstacles number in the many, the winners of this year’s awards show that there are still opportunities for the taking, and, should firms mirror their contributions, clients and the industry at large stand to benefit as a result.

The firms selected by the judging panel and listed here have been analysed for their continual drive toward bettering client relations, diversity, and ability to lead and direct the industry. Some of the firms are new and have carved a niche in the industry, others such as AmInvest, who return for the fourth year in a row, have become industry stalwarts. While the industry regularly brings new entrants, those leading the way are clear for all to see – a fact not lost on our judges and those who voted in this year’s Investment Management Awards.