Cybersecurity has become a part of businesses’ daily vernacular, and it’s no different with investment firms. Over three-quarters of investment firms — up from 73.7% in 2015 — that responded to AUG Exchange’s Asset Management Operations and Compensation Study for 2017 said they planned to spend more on operations and technology, with a major focus on cybersecurity. Other key areas of IT focus were in regulatory/compliance and client relationship management.
“No surprises here,” Michelle McDonough, president of the Board of Directors for AUG The Exchange, told ThinkAdvisor. “The study validates gut thinking of operation managers and business leaders. The past few years, the trend in cybersecurity [spending] has been apparent … . Now the industry is going through a transformation, and cyber and protection of client information and data has become a top focus point, and in some cases has been eating up discretionary spending of small, midsize and, in some cases, larger firms.”
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Robert Roley, managing director and general manager of SS&C Advent, which co-sponsored the study along with the Investment Advisor Association, said he has seen the strong trend with clients in growth of cybersecurity and compliance technology. “They aren’t doing it to be competitive, but to survive,” he said.
He did say he was a little surprised by the increased focus on client servicing technology, but he attributes this to the generational wealth transfer to millennials from baby boomers. “Digital presence and being able to interact with clients through technology by the wealth manager is also becoming an expectation and a way [for a firm] to differentiate,” he said.
Fifty-two investment firms participated in the 2017 survey. They range in size from large enterprises with more than $20 billion of assets under management (AUM) to smaller firms advising less than $1 billion of client assets.
Among participants, revenue met headwinds this year, with a 2.5% median growth of AUM across all groups. This was the weakest growth since 2009, and almost half the firms surveyed saw a decline in revenue. One in three firms reported net asset outflows. Roley said much of that is due to continuing fee pressure, as well as greater competition from smart beta and robo advisors. The study also found a growing increase in the number of firms considering outsourcing certain technology and operations, which McDonough attributed to firms focusing on economy and staying lean, as well as freeing them up to concentrate on their core business of investment management.
The survey also found that the hiring slowed to 2.3% verses 4% in 2015. McDonough noted that despite that, there was a growth in discretionary spending as well as increased compensation growth for “tenured and seasoned professionals.” In fact, the study found 79% of firms saw a growth in compensation, largely for research analysts and investment and portfolio managers. One growing trend was tying compensation to client retention, although profitability and personal perfomance were still the two main areas of compensation focus.