It’s time for asset managers to boost efficiency, resilience

Prioritize tech, outsourcing and transparency

Asset managers are walking a tightrope in a storm that has shown some clearing of late.

They’re trying to keep their footing amid economic headwinds that demand greater cost efficiencies. They’re balancing the ever-changing demands of clients and regulators. They’re acutely aware of the cybersecurity risks and other threats awaiting a single misstep.

And to make it to the other side, they’ll need to improve their operational efficiency while becoming more risk-resilient. That was the message of a recent Grant Thornton panel on driving growth in the asset management industry, which was part of the firm’s Executive Forum Series and provided practical insights and predictions on the topic.

Automation and efficiency for asset managers

Efficiency improvements can range from relatively simple technological upgrades to wholesale organizational restructuring.

One good example of a highly beneficial but somewhat simple improvement comes from National Managing Partner for Asset Management Michael Patanella, who moderated the panel. He described a client that has a robust website and a dedicated app but was receiving frequent requests from investors for more specific and detailed reports.

“So, the company looked at different ways that they could streamline that process to eliminate the resource drag to reply to inquiries,” he said.

The investment in a more robust report-generating tool had a twofold payoff: Investors got the transparency they wanted and the process of providing those reports became more automated and efficient.

Much larger-scale reorganizations, meanwhile, can prepare a company for unpredictable changes in the market. McGurl worked with a Fortune 50 organization on a project that began a decade ago. The organization was largely focused on financial activities such as asset management and trading, and after more than a century of growth, it was “highly fragmented, somewhat decentralized and entrepreneurial.”

With declining operating margins, McGurl and the CFO worked to harmonize systems across the enterprise, examining activities from source-to-pay, record-to-report, order-to-cash and hire-to-retire.

The goal was “looking at what those interplays are across the entire ecosystem and how to minimize the handoffs.” And achieving that meant not just changing systems but reforming how and where people worked.

“The result was an absolute redefinition of the enterprise operating model shift to a multisite, global, multifunction shared services organization that had streamlined processes,” McGurl said. That harmonization proved an enormous benefit as the pandemic arrived, with the client finding that its processes could be both virtualized and automated.

It’s estimated the project has delivered $3 billion in savings, McGurl added. And it worked because it was not just about buying the best technology but instead about achieving specific objectives.

“What do you want to do differently with the technology?” he asked. “Don't design the technology or redesign the technology to support your existing operations exactly how you're structured today. Look towards the efficiencies you can drive in the future.”

‘Traditional’ vs. ‘strategic’ outsourcing

Market pressures may push more asset managers to consider outsourcing — and they’ll have to choose between two major models of outsourcing.

“Traditional” outsourcing is, of course, the stereotypical version of the model: Work is shifted to a third-party partner, allowing the company to cut internal staff or minimize staff growth.

“Oftentimes, it is a pure cost reduction play,” McGurl said. “How do I drive near-time financial results and benefits?”

But a purely transactional relationship is often unsuccessful. Instead of improving its internal operations, the client is allowing the vendor to “capitalize on your inefficiencies,” McGurl said. And those clients will often seek to insource the work again later.

In contrast, the “strategic” approach aims to supplement, not replace, the work of the client organization. Ideally, a strategic outsourcing partner will bring complementary competencies and capabilities.

“I see organizations now looking at it with a much more strategic lens,” McGurl said. “How do we partner with other organizations, third parties, to create long-term value?”

The strategic model can include a wider range of work — not just support and service roles but also knowledge-based work such as planning, analysis and decision support.

No matter the model, it’s crucial for the client to safeguard against the loss of value and knowledge. That means retaining and developing expertise in all business functions, even if some work is being outsourced. Success also requires a strong contract, as well as privacy and security protections.

“Make sure that you do the diligence, have the right service levels, have the right clawbacks in place, and you've got a phenomenal governance framework around it,” McGurl said.

Cybersecurity risks and responsibilities

Cybersecurity has been an issue for years, but there’s been a change in how some asset managers approach the risk.

“In the past, a lot of entities sometimes would maybe pay off a ransom to get their data back, or not report it, because they felt that it would be a negative,” Patanella said.

Now, there’s greater regulatory and investor pressure to proactively address and disclose cybersecurity risks, including through the SEC’s new Form 8-K rules for reporting material cybersecurity incidents that took effect Dec. 18, 2023.

Regulators are “looking for companies to convey to the public and to their investors how cybersecurity risks are managed within the enterprise and whether they're part of the registrants’ overall risk management program, whether third parties, assessors or auditors are used as part of that process,” said Grant Thornton, Managing Director for Cybersecurity and Privacy Advisory Services Maxim Kovalsky.

The SEC will require companies to disclose whether cybersecurity threats, including previous incidents, have materially affected or are reasonably likely to materially affect the company’s business strategies, financial conditions or results of operations.

Finally, companies face new reporting requirements for data breaches and other incidents.