COO Magazine Q1 2024

Dan Ridler

Managing Director, BCS, UKI FS
Strategy & Consulting

Cost Transformation: The Future of Asset Management in the UK

Cost transformation for asset managers

Before the pandemic created the start of global market turbulence, asset managers were challenged with cost and profitability. In 2019, 21 of the top 25 asset managers saw their profit margins decline an average of 20% YoY even though their AUM increased 20% in that same time. Global market conditions have caused investment performance declines and lower revenue realisation, resulting in increased pressure on profitability and an overwhelming urgency to take action, all while maintaining long term productivity and value generation.

47% of UKI asset management executives named ‘cost pressures’ as the greatest challenge for their firm

Source: Accenture Future of Asset Management UKI research

Cost Transformation Industry Viewpoint

As the urgency for cost transformation continues to add pressure to asset managers, firms are responding with tactical and strategic actions to ensure immediate relief and the ability to supportlong-term reinvention.

Industry Challenges

Profitability & Cost Transformation: Profitability has been a decade-long challenge for asset managers, as cost ratios have continued to decline. However this pressure has reached a new level of urgency, especially for the mid-sized asset managers.

Fee Pressures: The race to zero fees has overtaken the industry over the past decade. The ability for firms to balance low fees while meeting profitability targets has exacerbated cost pressures.

AUM Growth has suspended: AUM has ridden the bull-market wave, causing firms to reach new heights in size. Even with the growth, firms have historically failed at translating AUM growth into profit growth.

Complex Business Models: Growing cost of complexity in business models to offer new product and asset classes has strained the ability to achieve widespread scale and visibility into cost structure.

Unpredictable Fund Flows: Client and investor preferences are changing; combined with market volatility, fund flows have are being driven away from traditional products and into money market funds and ETFs.

How are Asset Managers responding?

Freezing Hiring & Issuing Layoffs: Even in a challenging talent environment, firms have froze hiring and opted for layoffs for immediate cost relief (e.g., Janus, TRP, Morgan Stanley)

Focussing on Costs and Discretionary Spending: Firms have opted to pause discretionary G&A spending and rigorously reviewcosts to until market conditions calm (e.g., Insight, Blackrock, Jupiter)

Adjusting & Rationalising Fund Lines: Firms have opted to immediate cut fees to attract more flows into small funds, and rationalise fund offerings (e.g., BlackRock, SJP, Jupiter, abrdn)

Evaluating Business Units: Firms are looking to simplify their business models through divesting in business units (e.g., abrdn contemplating alternative investments)

Rethinking Location Strategy: Hybrid environments have forced firms to rethink physical footprints, and now firms are taking action to reduce and/or relocate (e.g., BNYM)

Redefining Core Competencies: Firms are increasing focus on efficiency and simplifying business models by leveraging outsourcing and automation partners (e.g., Man Group, AIG, M&G)

Rethinking Business Models: Firms are looking to transform their end-to-end business models to support and sustain long-term productivity and value, including evaluating their current strategic partnerships (e.g., BlackRock, Invesco)

Note: References sourced directly from public filings and/or industry publications.

Cost Transformation Tactical and Strategic Levers

Asset managers are universally pursuing key short-term and long-term levers to achieve a more sustainable cost structure, many of which we are supporting with our clients today.

Turn off discretionary spend channels
Executive decision to halt discretionary spend

Negotiate and benchmark current suppliers
Collaborate with third-party to review commercial terms

Review and optimise cost structures
Assess cost profile to identify immediate take-out opportunities

Change delivery review and demand consolidation
Assess and prioritise change portfolio and overall delivery model

Process optimisation and automation
Identify immediate process efficiency opportunities across business

Technology and application rationalisation
Review architecture to decommission unnecessary platforms

Modernise technology platforms
Redesign operating model and re-platform with leading technology

Outsource investment lifecycle processes with Strategic Partner
Assess opportunities to outsource non-core functions to third-party

Outsource corporate functions with Strategic Partner
Assess opportunities to outsource non-core functions to third-party

Business Model Reinvention
Redefine business strategy and transform end-to-end operating model

25% of UKI asset management executives named “radical cost restructuring” as an initiative planned for the next 3-5 years

Source: Accenture Future of Asset Management UKI research

Case Studies How are we helping our clients today?

We have supported our clients through their largest transformational efforts, many of which have cost transformation at the core.

Client: Global Asset Manager – $300B+ AUM, Operating Model Design & ZBX

Challenge: Our client saw increased revenue and AUM growth but was faced with increased operational complexity and operating expenses, and an inconsistent culture across the organization. Client desired to establish a more agile operating model globally across the enterprise to drive out cost, improve cost profile, and provide a platform for growth.

Our Approach: Assessment of current operating environment and develop visibility into organization cost profile. Designed a future state operating model for global functions across the enterprise and investment lifecycle. Outlined immediate and strategic roadmap with corresponding cost-benefit analysis.

Value realised: Notional business case identifying ~$80M of net runrate annual benefits across Technology, Business & Operations, and Corporate Functions. Target Op Model which identifies immediate cost takeout opportunities, and long-term simplification of operating environment

Client: UK Asset Manager – £150B AUM, Operating Model Design & SP Evaluation

Challenge: Our client looked to redesign their operational strategy to support their aspirations in 2025 and beyond. The focus was to shift from a processingfocused cost-centre and into a renewed servicebased, value generating core of the business. As part of this effort, our client pursued the evaluation of their current strategic partner, to ensure that the third-party was the ‘right fit’ for the future across capabilities and commercials.

Our Approach: Redesign operating model to focus on value generation, client-centricity, risk management, and investment services. Achieve scale and flexibility to support AUM growth of 45% by 2025 and toward £1T by 2030, and expansion into complex asset types. Evaluate current service provider across in-scope and aspirational capabilities, and commercial terms.

Value realised: Target state design and strategic roadmap that enables future growth and aspirations. Realised immediate 5% YoY discount across services with current outsourced provider. Outlined long-term $100M revenue opportunity through securities lending over 5-years, and annual savings of $5M by streamlining FX execution model

Client: Global Asset Manager – $1T+ AUM, Operating Model Design & Outsourcing

Challenge: Our Client realised substantial AUM growth in a short timespan, resulting in a high-cost, high-risk operating environment that was operationally creaking. With a vision to grow AUM exponentially, our client embarked on a strategic initiative to redesign their global operating model by investing in technology and service-provider enhancements, reducing cost, and minimizing risk across the investment lifecycle.

Our Approach: Design ‘clean sheet’ target state operating models for two options: insourced and outsourced. Design and implement a model that leverage best-inclass solutions to accelerate time-to-market for new investment solutions, markets, and asset types. Maximise operational scale, ensuring that future-state run-rate costs and overall structures are sustainable in the long-term.

Value realised: Strategic target operating model that enables and shapes the future of their global business model. Detailed financial structure across IT, Operational, and Resourcing costs over 10-year timeframe. Overall cost savings of $200M+ annually through strategic partner outsourcing and technology rationalisation.

How Accenture Can Help

Across the core investment lifecycle and corporate functions, we are partnering with our clients to support the transformation of their business models. When focussing solely on cost reduction, we work with our clients on immediate and long-term initiatives to ensure the objectives productivity and value generation are met alongside cost restructuring.

Optimise Cost Structure: Our proprietary framework (ZBB, ZBx) to reset cost bases, identify immediate takeout opportunities, and unlock investment for strategic priorities.

Core Process Optimisation: Review and streamline existing processes through redesign, system automation and/or deployment of applied intelligence (e.g., AMBOT)

Business Model Reinvention: Redesign operating, technology, data, and talent model to meet long-term business vision and aspirations (e.g., new revenue streams, growth engines, products, locations, etc.)

Strategic Partner Review & Optimisation: Partner together to issue an ‘RFP-to-One’ for current third-party partners to enhance current services and negotiate current commercial terms.

Operating Model Review: Review and assess current operating environment to identify short-and-medium term enhancements to automate, streamline, and/or outsource.

Strategic Partner Evaluation & Outsourcing: Identify opportunities across the investment lifecycle to outsource to new and/or existing strategic partner (including data services and trading).

Technology & Data Review: Review and assess technology and data architecture to identify opportunities for rationalisation and simplification.

Platform Modernisation & Implementation: Upgrade data and technology infrastructure across investment functions and core functions to achieve higher levels of automation, value, and scale.

Change & Transformation Review: Review and assess delivery model, including rationalisation and prioritisation of current change and transformation portfolio

Technology & Application Outsourcing: Identify and evaluate opportunities to outsource IT infrastructure, service management, and application management.

Corporate Functions Evaluation & Outsourcing: Evaluate opportunities to outsource corporate functions such as Human Resources (HR), Finance, and Compliance.

About Accenture

Accenture is a leading global professional services company, providing a broad range of services in strategy and consulting, interactive, technology and operations, with digital capabilities across all of these services. We combine unmatched experience and specialized capabilities across more than 40 industries – powered by the world’s largest network of Advanced Technology and Intelligent Operations centres. With 700,000 people serving clients in more than 120 countries, Accenture brings continuous innovation to help clients improve their performance and create lasting value across their enterprises.

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