The priorities of asset managers in the US and Europe “differed considerably in 2013,” according to a new survey by EY.

The priorities of asset managers in the US and Europe “differed considerably in 2013,” while the former region is poised to gain greater market share in the latter over the next few years, according to a new survey by EY, entitled Managing Complexity and Change in a New Landscape.

Having surveyed 40 industry chief executives and head of operations across the Americas and Europe, the professional services firm discovered that changes to asset management operating models are no longer driven by cost and regulation factors, but by the expansion of distribution channels and the development of new products. By leading this shift in focus, EY believes US asset managers are in a prime position to grab “first-mover advantage” over Europe.

For example, when asked to list the primary drivers of change to their distribution models, 81 per cent of US managers pointed to enhanced distribution channels. This was followed by: enabling new products (43 per cent); targeting new markets (33 per cent); and increasing brand awareness (24 per cent). Only 19 per cent cited the changing regulatory landscape - a surprising finding given increased awareness industry-wide about regulatory change.

By contrast, 68 per cent of managers in Europe reported that changes to their operating model is driven predominantly by regulatory factors. Meanwhile, 47 per cent of those surveyed in this region are focused on supporting new products, while 26 per cent are prioritizing improving distribution channels or targeting new markets, and a meager 5 per cent are honing in on brand awareness.

Alex Birkin, global wealth and asset management advisory leader at EY, noted that there is “less overlap and complexity” of regulation in the US than there is in Europe. The US economy has also “recovered from the crisis faster,” he said.

“US managers have greater flows, which mean they are out of the blocks quicker on growth. Many European managers are only now starting to focus on the growth agenda. As a result, the US managers are investing in international distribution and inorganic growth, including new product and distribution targeted at Europe. These results suggest US managers will gain greater market share in Europe over the next few years,” Birkin continued.

Global trend

Improving distribution channels was named as the primary driver of operating model change among 55 per cent of all managers surveyed, followed by enabling new products (45 per cent), changing regulation (42 per cent) and targeting new markets (33 per cent).

Birkin said managers are increasingly focusing on internationalizing their distribution channels and investing in their brand to “make sure they are in a position to reach out directly to their end customers if they choose to.”

However, “going direct” will not necessarily be the right strategy for all players and requires significant investment in brand and marketing – notwithstanding the “thorny issue” of disenfranchising existing intermediaries, said Alan Fish, Americas wealth and asset management advisory leader at EY. 

Meanwhile, there is “still downward pressure on margins and they [asset managers] are still focused on efficiency and cost reduction.” 

EY said “offshoring” - despite regulatory scrutiny - is gaining momentum in the asset management space. More and more managers are creating so-called “centers of excellence,” offshore or near-shore, while the functions they are increasingly outsourcing are also “moving up the value chain to things like equity research.”

“The question is not should you outsource, it is what should you outsource,” Birkin noted.

He said: “The survey results suggest the majority of managers would like to use one or two strategic partners. Although service providers are continuing to significantly enhance their capabilities, there's still a perception held by managers that no single provider can provide a complete global service and therefore they are continuing to use multiple providers.”

With greater scale comes heavier burdens?

Based on the findings, medium-size managers appear to have “globalized” their operating model to a greater extent than larger players, primarily due to their less complex products and geographical footprint.

EY explained: “For example, creating a shared services organization is a strategic decision that is implemented across as many functions as possible and is a relatively mature concept in investment operations. Most organizations already have central teams in place to handle most insourced functions but only a handful of larger firms have separate teams throughout the organization for each separate functional area. Here, scale and complexity to consolidate outweigh the benefits.”

Meanwhile, data - not technology - is becoming the differentiator, according to Fish.

“With only a small number of vendors in the market, managers are rationalizing and consolidating their platforms and so there's little competitive advantage in technology any more,” he said. “Access in terms of being able to analyze and use data for client, regulatory and management reporting is the new battle ground.”

That said, when it comes to data management, quality and access was pinpointed by 75 per cent as a top challenge among those surveyed, followed by rising regulatory demand (62 per cent), availability of data (60 per cent) and data governance (52 per cent).

“Regulatory concerns aside, firms are still grappling with how to source and use their data to their advantage,” said Birkin.

“Data silos are still prevalent and a single view is not easy to achieve. But those managers that get there first are going to have a distinct competitive advantage in all aspects of their business.”

Click here to read an article by Bob Leaper, head of business development, North America, DST Global Solutions, emphasizing the importance of data quality in the wealth management.