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Asset managers stretched by new money

20 November 2000  |  907 views  |  0 Asset managers stretched by new money

Asset management businesses worldwide will face new challenges as "new money" high net worth individuals (HNWIs) - many of whom made their fortunes in the last decade - will demand that "old money" asset mangers and investment advisors shift their focus from wealth preservation to wealth creation while retaining present service levels, according to a new Arthur Andersen research report, High Net Worth Asset Management: delivering value in dynamic markets.

Surveying 216 HNWIs and 248 asset managers worldwide from July to October 2000, Arthur Andersen found that asset managers will be expected to respond to demands for greater performance and value-added services from as many as 10 million people with investable assets in excess of $1 million.

The research report indicates that personal client expectations among "new money" customers will loom large; asset managers will be pressured to continue providing the traditional client relationship management services that have distinguished them in the past.

While 55 percent of HNWIs surveyed expressed a desire for the kind of 'old money' one-to-one relationships that are at asset management's roots, 80 percent nonetheless want regular information on a wider range of investment options than they currently receive. Tied to customers' demand for high-performance is increasing scrutiny of the value of traditional fixed-fee pricing structures. Some 45% of HNWIs said they would prefer minimum flat fees coupled with results-based incentives, while a further 25 percent said they would opt for performance-based fees with a profit-sharing element incorporated.

This shift may signal an increased appetite for risk, says John Tesoro, partner leading AA's asset management practice for North America. "Tolerance for risk and demand for value-added services among high net worth investors is growing, as competition among asset managers intensifies globally," he says.

He points to growing demand among the newly affluent for pooled investments, such as hedge funds, which offer higher returns than traditional investments.

A triangular business model for successful asset management in the global marketplace is emerging, states the report, based on market performance, technology and value-added services, and superior client relationship management skills. Meeting this demand is commercially unsustainable for all but the largest asset managers, who will be able to draw on economies of scale across global business lines to create low-cost production and distribution models.

"Many asset managers will find their advantage in sourcing specialist funds from best-of-breed, third-party providers," says Ed Bambauer, partner leading Arthur Andersen's northeast financial services consulting practice. "Asset managers that become aggregators stand a step away from offering customers direct, online access to investment vehicles. As competition increases, some will take that step. By creating direct-access digital networks, asset managers can retain ownership or control of valuable client relationships."

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