Taking care of business

Taking care of business

There has been a radical shift in asset managers’ approach to client retention and acquisition in response to the emerging era of being required to work much harder to gain and maintain business.

Managers are making changes that go well beyond merely responding to shifts in demand for specific products or asset classes – they are charting new strategic directions and taking a more tailored view of relationship management.

At first glance, such a fundamental rethink might appear unnecessary. Research by Roland Berger indicates that the average profit margin of the top six managers remained stable between 2010 and 2016.

But below the highest echelon, the firm says those lacking a competitive edge are falling further behind.

There is also a wave of regulations and initiatives – from Mifid II to the UK FCA’s report on transparency – that are set to heap further pressure on managers to prove they are delivering real value to investors.

“We see more of an organisational focus on clients where the whole structure of the business – how it is managed, how it develops products and takes them to market, its branding – is geared towards client management,” says Henry Weston-Davies, a partner at consultancy Gulland Padfield.

This is in contrast to the traditional approach where only the front line, client-facing teams were seen as important.

Phil Reid, head of wholesale at Royal London Asset Management, says there is an increasing emphasis on explaining the likely outcome from an investment strategy and focusing on the specific details of a particular portfolio when having conversations with clients.

“In response to demand from the IFA sector, we are devoting time to educating advisers on trickier areas, such as the details of bond markets,” he says.

“As part of this, we recently organised a series of regional seminars for IFAs on fixed income, offering them a chance to develop their knowledge and hear from fund managers and other key members of our fixed income team.”

As managers seek to implement client strategies, they are undertaking a range of exercises from researching their clients more thoroughly to better understand their needs to repositioning their brands.

Weston-Davies says some managers have embraced this process more enthusiastically than others. He notes Aviva Investors as an example of a firm that has a single, coherent message around the benefits it delivers for clients across all channels.

“In other cases we have asset managers whose brands are hard to find because they are part of a larger institution or are putting out the wrong message,” he explains.

“Performance is no longer the only factor clients consider when they are engaging a manager, particularly with the rise of passive investment strategies.”


The best way to retain customers is to perform in line with the client expectations on a consistent basis.

However, the variability of markets and business cycles means this cannot be done in a linear fashion and there will inevitably be periods of underperformance.

Therefore consistent and transparent communication with clients is extremely important to retain their confidence and is sometimes even more important than the performance itself, according to Franklin Templeton Investments managing director EMEA and India Vivek Kudva.

“Firms that focus on the overall client service experience tend to be better at retaining assets than firms that are just focused on performance,” he says.

“Managers now have to be able to deliver trusted advice along with customised solutions across multiple platforms, including mobile devices and social media.”

An effective way for asset managers to capture additional revenue is to develop capabilities that allow them to play an expanded role across the value chain.

Examples of this include providing solutions to clients that include operations, risk management, asset allocation and technology front-end capabilities, in addition to traditional investment management functions.

Depending on the manager’s operating model, long-term strategy and delivery of client expectations, increased revenues should lead to higher profits.

However, the pace of change in regulation and client sentiment is challenging many aspects of the asset management industry.

Only some businesses will be able to translate increased turnover into higher profits and particularly those with the ability to scale, while others – particularly those with boutique operations – may see their margins shrink due to more onerous regulatory burdens.


Firms that want to translate increased revenue into higher profits have to focus on core competencies, competitive ad- vantages and cost efficiencies, says Kudva.

“They have to use this focus to develop and promote only those solutions that are scalable,” he says. “Too many asset managers are struggling because they are trying to be all things to all people.”

The most effective approaches for capturing additional revenue streams from new or existing clients will differ between single strategy boutiques and bank-owned managers, observes Paul Williams, head of Emea business development at RBC Global Asset Management UK.

“There are a wealth of opportunities to leverage client relationships and capture additional revenue streams,” he says.

“Building a trusted relationship – for instance, through providing advice and education – rather than one based on a simple sales push should result in a more effective understanding of a client’s true needs and how these needs can be serviced.”

Chantal Brennan, chief investment officer at Davy Asset Management, says that fund-by-fund transparency, a requirement of regulation, enables clients to see the value their manager is delivering and will increasingly impact customer retention.

“The focus for capturing additional revenue streams from existing clients is around securing new mandates, offering solutions to specific issues the client is facing,” she says.

“For example, are there more efficient ways of managing their cash flow that can deliver almost risk-free returns in a low interest rate environment? Clients are also more forgiving of a manager who admits when they have made mistakes and explains why those performance issues arose.”

Retaining local contact with clients remains the backbone of client retention according to Robert Higginbotham, head of global investment services at T Rowe Price, who also stresses the importance of robust staff hiring programmes and appropriate incentivisation schemes.

“From a service perspective, there is a balance to be struck between driving efficiency while recognising that clients will want different types of relationships,” says Higginbotham.

“This demands smart use of data and the ability of relationship managers to capture that data in customer relationship management systems so that other people in the organisation can learn from it.”


Managers need to carefully analyse the level of service they want to provide to each client segment.

“In the past, the one-size-fits-all approach has meant that managers are over delivering for some clients who don’t need that level of service and don’t generate the revenue to justify it,” says Weston-Davies.

“When clients are analysed by profitability rather than size, it becomes clear that the largest are often less profitable than mid-sized clients.”

Certain investment strategies within asset classes are working particularly well in terms of attracting new business.

In relation to fixed income, Brennan says that where the client has a hold-to-maturity strategy they are being offered bond ladders – portfolios of fixed income securities in which each security has a significantly different maturity date – to increase the yield.

Meanwhile, the dynamic for equity funds it is about creating products that potentially limit downside; there is strong demand for market-neutral-type strategies or strategies that offer a specific level of return in exchange for a specified level of volatility.

Key factors to consider when targeting a new client segment include secular shifts such as ageing populations or the move from defined benefit to defined contribution pensions, adds Mike Walsh, head of institutional distribution at Legal & General Investment Management.

“For example, we recognised that the corporate pension scheme de-risking trend was likely to play out globally. We entered the US in 2006 on the back of our expertise in managing liability-driven investment strategies in Europe,” he concludes.

“At the time, the de-risking market in the US was relatively immature and we did not think this trend would play out for a number of years. We now manage $197bn across 115 clients, including five of the top ten largest US corporate defined benefit plans.” 

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