The future of asset management: opportunities and challenges

During the seminar ‘The Future of the Asset Management Industry,’ specialists from the financial sector came together to discuss the challenges and opportunities that lie ahead for asset management. The focus was on combining effective asset management with increasing pressure from regulations, sustainability requirements, a declining number of custodians, and technological innovations. Paul-Willem van Gerwen (AFM), Alex Poel (Projective Group), Pieter Aartsen (AFS), and Robert Lobo (Mylette) provided insights into how the sector can prepare to thrive in a dynamic environment.

Insights from Paul-Willem van Gerwen

Paul-Willem van Gerwen, head of the Asset Management department at AFM, emphasized the importance of dialogue about the future of the asset management sector in his speech. “To glimpse into the future, we must first understand where we stand today,” he stated. With approximately 180 asset managers in the Netherlands, of which 90 focus on private investors, the diversity in the sector is significant.

During his speech, Paul-Willem elaborated on three crucial themes shaping the future of asset management.

Firstly, he discussed outsourcing, which is becoming increasingly important in the sector. Whether it’s HR, compliance, or IT, many organizations outsource certain activities. He emphasized that asset managers must realize they remain responsible for what they outsource and to whom.

To support organizations in responsible outsourcing, he provided three recommendations:

1. Clear policy: Formulate clear policies regarding what outsourcing entails. This helps organizations distinguish between supportive and critical activities for their operations.
2. Documenting considerations: Document the considerations behind whether certain tasks are outsourced. This supports cost-benefit analyses and provides insight into strategic choices.
3. Transparent selection process: Ensure a transparent selection process for service providers, including an exit strategy in case issues arise.

Following the topic of outsourcing, Paul-Willem briefly touched on the SREP (Supervisory Review and Evaluation Process). He highlighted the importance of SREP as a new European regulatory framework and regarded it as a valuable reflection tool for organizations to assess their business model. A well-structured Product Approval and Review Process (PARP) is essential for successfully launching new products and services.

Additionally, he spoke about the crucial role of custodians in ensuring trust among investors. Paul-Willem noted that the number of custodians is declining due to consolidation, leading to concentration risks. He urged the sector to consider alternatives for asset segregation in specific cases and indicated that AFM is open to this, provided that the interests of investors are not jeopardized.

He concluded his speech with a powerful message: “By working together and learning from each other, we can strengthen the sector and tackle the challenges of the future.”

Maintaining control over your license: insights from Alex Poel

Alex Poel emphasized the importance of maintaining control over one’s license for asset managers in an increasingly complex regulatory landscape. He stated, “A license is the key to your ‘license to operate,’ but it is crucial that you clearly understand the legal framework within which you operate.”

What are the key points for asset managers to maintain control?

• Robust legal framework: It is essential to be aware of both current and future obligations. A complete understanding of the applicable legal framework is critical to avoid vulnerability to the expectations of regulators such as AFM and DNB.
• Responsibility in outsourcing: Adequate management of the outsourcing process is crucial, especially in light of cost pressures and the rise of technologies such as AI. Asset managers remain responsible for the processes they outsource.
• Knowledge and governance: AFM uses a suitability matrix to assess the knowledge and expertise of directors. This is a valuable tool for assessing the current situation within a company. “You must ensure that you have the right expertise in-house, even when outsourcing. Know what the obligations of your license are, now and in the future.”

Alex ended with a call for proactivity, emphasizing that it is essential to meet legal requirements, in addition to investing and relationship management.

Autonomy for asset managers: insights from Pieter Aartsen

Is extensive autonomy for asset managers necessary to ensure their independence? Pieter Aartsen observed that the autonomy of asset managers is increasingly under pressure. He questioned the extent to which they can still decide which clients to serve and how much time to dedicate to client contact. Strict laws and regulations, as well as technological developments, make it increasingly difficult to operate autonomously.

There are several key external factors that influence autonomy. The legal framework significantly restricts the operational freedom of asset managers, while technological innovations have drastically changed client service.

Pieter also emphasized that the onboarding process for clients remains a persistent issue. He pointed out complaints about the slowness and inconsistency of policies among custodians, which negatively impacts the time available for clients.

To increase the autonomy of asset managers, he proposed several strategies, such as collaborating with multiple custodians and self-custody. “While extensive autonomy is not necessarily a requirement, we must think about how asset managers can position themselves in an increasingly complex market,” Pieter concluded.

Self-custody: what’s next? By Robert Lobo

How do asset managers operate when they decide to expand their license with the ancillary service of self-custody? Robert outlined the current situation in which many asset managers operate, facing challenges such as high costs, slow growth, and lower returns for clients due to inefficiencies among custodians.

He also mentioned the drawbacks of the current system. Slow onboarding processes can lead to frustration and client attrition. Additionally, the dual KYC process causes delays, negatively impacting the client experience. Lastly, the costs of custodians are often non-negotiable, limiting the options for asset managers.

In self-custody, fundamental aspects of operations change, such as the need for proprietary applications and more operational staff. Robert emphasized that asset managers must establish key processes, such as KYC processes and reporting obligations.

Benefits of self-custody include that asset managers handle all core activities themselves, providing clients with a single point of contact. With the right application, the process becomes more efficient, leading to improved client service.

Robert concluded his speech by stating that self-custody presents an opportunity for asset managers to gain more control over their processes and client relationships. “However, it is not a simple step and requires careful consideration and investments in technology and personnel,” said Robert.

Conclusion

The future of asset management presents both challenges and opportunities. By collaborating, sharing knowledge, and adapting to market changes, asset managers can not only survive but also grow. Maintain control over the license by focusing on core tasks in asset management and client relationships, and delegate all other responsibilities to specialized parties. Ensure that the top management has sufficient expertise to maintain control, even in outsourced work, so that risk management and compliance remain assured. As Paul-Willem summarized, “The key to success lies in collaboration and the willingness to learn from each other.”