Investment management: Why relationships still matter

Effective relationship management is fundamental to profitability and competitive differentiation says Jason Rushforth.

TowerGroup’s recent report ‘The 2007 Top 10 Business Drivers, Strategic Responses, and IT Priorities for Asset Management Firms’ (published in October this year) identified “a return to the business of money management” as a core theme, noting that the successive distractions of the dot-com era, the market corrections that followed it, and the recent regulatory blitz have stolen center-stage for several years. Now, asset managers are finally able to refocus their attention on the fundamentals of their business, including their products, processes, infrastructure, and competitive environment.

As investment managers look at this environment anew, they are finding steep challenges: client demands are expanding, margins are shrinking, and there is increasing competition from hedge funds and alternative investment vehicles. But they are also finding that some age-old fundamentals, including client relationships, remain as important as ever. In turn, they’re recognizing that the processes and infrastructure they have in place to support these relationships – namely, their client relationship management (CRM) system and strategy – need to be both solid enough to endure market vagaries and flexible enough to accommodate the evolving demands. TowerGroup concurs, its report naming “relationship management” one of the top ten strategic responses of 2007.

Why are client relationships and CRM as important as ever? First, the increasing sophistication and demands of both retail and institutional clients have made deep client knowledge essential. It is not good enough to focus blindly on traditional products; asset managers need to listen to client demands (including those for non-traditional products), understand their individual needs, and respond accordingly. Second, in this competitive environment, there is no end of alternatives for clients to pursue: investment managers need to offer clients something above and beyond the competition. In addition to innovative products that respond to investor needs, asset managers have the opportunity to offer a personalized, value-added client experience that encourages client retention – but this is only possible if they are effective and methodical in their approach to collecting and applying client information and building the relationship.

This is why the support of a flexible, responsive CRM system continues to be important for investment managers. CRM systems enable asset managers to break down data silos between different groups within the firm to enhance collaboration and facilitate an integrated approach to capturing and sharing client information at each stage of the client relationship. As TowerGroup notes in its report, this needs to encompass both sales and service activities, blending elements of each to leverage client service more effectively during the sales process and leverage sales opportunities more consistently throughout the service relationship. This is virtually impossible without a single, centralized repository for client data and collaboration tools that enable different firm personnel to share insights and assign actions to each other. Similarly, without such a system, offering clients the consistent and personalized experience envisioned above is very difficult.

As simple as this seems, its potential complexity is made clear when one considers two other important business factors affecting investment management: consolidation and globalization. Through mergers and acquisitions, investment management firms are simultaneously expanding and contracting, creating new obstacles in data management and collaboration. Similarly, the worldwide reach demanded of both investment management firms and their clients has led to growing complexity. It nonetheless presents exciting new opportunities for firms that can integrate their client data to find new opportunities, such as avenues into new clients via relationships that exist in other global offices or lines of business.

On the retail side, where asset managers do not have the direct client relationships enjoyed by institutional managers, CRM can still play a strong role in building and managing lucrative relationships – those with brokers. By giving retail asset managers insight into broker performance and profitability at the individual, branch, and company levels, a good CRM system can help investment managers nurture broker relationships in a more targeted and informed manner.

As investment managers “return to the business of money management”, the smart ones will remember that this business has always been just as much about managing relationships as managing money.

Jason Rushforth is Financial Services Global Vice President for Pivotal CRM, CDC Software.