Finance

Martin Gilbert: Asset managers must be paranoid to survive

Andy Grove, the former Intel co-founder and chief executive, once said that “success breeds complacency”.

It is five years since Grove sadly passed away. His life story of fleeing war-torn Europe after the Second World War, graduating from the University of California and establishing a global PC company is inspirational.

Not only did he help build Intel into a multinational technology corporation and the world’s largest semiconductor manufacturer, but he rightly became regarded as a business visionary.

Today’s business leaders would do well to take note of his sage advice, not least those working within the asset and wealth management industry.

The sector is estimated to have about $110tn in assets under management. For decades, it has enjoyed material growth in AUM and profits supported by global growth, rising financial markets, and an increasing population of savers.

Given this phenomenal expansion, it is easy to understand why some CEOs may become complacent, particularly at this point in time as we recover from the pandemic.

READ The new City normal in pictures

Asset and wealth managers have weathered Covid-19 reasonably well, in part aided by rising asset prices supported by the low interest rate environment, policy stimulus, and individual investors increasingly focused on their financial affairs.

As the lockdown guidelines continue to be eased, following the success of the vaccine roll-out, it is tempting for businesses to rest on their laurels.

This would be a huge mistake. Yes, there is much talk about us entering a ‘new normal’ characterised as returning to a finessed version of how things were. But from an asset and wealth management perspective, I fear talk of a ‘new normal’ may result in a period of inertia.

It neglects the fact that the industry is seeing some significant structural shifts, including the rise of passive investment products, the move from public to private markets, downward pressure on fees, and a greater focus on environmental, social, and governance considerations.

READ Asset managers need to slash costs to survive, EY warns 

The profile of investors is also changing, with the onus increasingly on individuals to take responsibility for their financial affairs. Like in other parts of their lives, investors expect technology to play a key role in how they manage their finances. Unfortunately, asset and wealth managers still lag behind other industries when it comes to providing digital services.

Another change is the fact that retail investors are more willing to consider different investment products. You only need to look at the amount of money flowing into ETFs to realise that the dominance of mutual funds as the investment vehicle of choice is under threat. Despite this, very few investment managers offer ETFs.

Asset and wealth managers have enjoyed a fruitful period but to continue to do so, they need to recognise the changing landscape and act by developing their businesses accordingly. If they don’t,‘ they face being disrupted by new entrants who are typically more agile and nimble.

If there was ever a time for CEOs to be paranoid and look around the next corner, it is now. As Grove also said “only the paranoid survive”.

Martin Gilbert is the co-founder and former chief executive of Aberdeen Asset Management, and is now chairman of AssetCo

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