Effective change – the importance of aligning strategy, culture and compensation


Thursday, June 3, 2021 | By Michael Andrews, CFA, Head of Investment Products Research and Consulting

Effective change – the importance of aligning strategy, culture and compensation

Over the last few years, executives from virtually every asset management firm have mentioned a desire to modernize their distribution operations and compete more effectively in the ever-changing industry landscape. Leveraging data and technology has helped, but firms also need to make significant changes in strategy and culture—which are often the hardest types of change to create.

In our recent whitepaper, Cost Effectively Growing Assets, we write about how firms that are seeking a more efficient path to distribution must identify and prioritize the clients and prospects who offer the best fit and opportunity for the firm.  Importantly, we emphasize that to successfully engage advisors, their preferences for engagement need to play more of a role.

The COVID-19 pandemic has provided firms the rare opportunity to jumpstart their modernization by forcing them to rely more heavily, or even entirely, on virtual and digital engagement. Now, firms need to institutionalize the practices and processes that proved to be most efficient and effective to create a new “status quo” of strategy, operations and culture—instead of going back to the old one.

To be successful, firms need to:

• Measure what matters

• Incentivize the right behavior

Measure what matters

On the sales side, firms have traditionally focused heavily on measuring prospecting activity, such as the number of outbound phone calls—especially for internal wholesalers. But as customer engagement models evolve and sales roles become more fluid, sales metrics are also changing. Instead of focusing on measurement for its own sake, firms need to focus on measuring what matters—that is, metrics that show how well the firm is executing on a coordinated, unified strategy to grow assets cost-effectively. Focusing on metrics that deliver real impact, and aligning those metrics across the distribution organization, can ensure firms stay on track with their strategic goals.

Incentivize the right behavior

Once firms have decided what to measure and which metrics to utilize, another extremely important management decision pertains to incentives and compensation. Compensation needs to elicit the behaviors from the organization necessary to accomplish financial goals.

Ultimately, compensation needs to drive positive behavior and actions that will grow assets in a cost-effective way. While heavy commission models will undoubtedly drive sales activity, the type of activity they encourage is not necessarily well-aligned with a world that is increasingly consultative rather than transaction based, especially post COVID-19.

Anticipated changes to compensation over the next 12-18 months.

Infographic shows the changes asset managers anticipate in the future

Source: SS&C Research, Analytics and Consulting, Remote Selling: Asset Manager Sales in a Post-COVID World, 2020

In addition to aligning compensation with appropriate metrics, we also believe incentives and compensation must align with the culture of the firm. Regardless of the approaches and metrics used, if they are not perceived as aligning with the culture of the firm and its values, they will likely fail. Transparency is essential, as buy-in from stakeholders will ultimately determine success. Changes that are not properly communicated, especially changes that negatively impact compensation and benefits, will likely cause resentment and may negatively impact future firm results. Ill-considered changes to incentives and compensation can easily cause long-term damage to the ability of an asset manager to acquire and retain talent. Since human capital is usually the most valuable asset of most asset managers, this damage can easily outweigh the short-term financial benefits that might accrue as a result of a change to incentives.

This is not to say changes to incentives and compensation cannot be made. In fact, we would argue that the reality of technological change, the cost of in-person meetings, and increased competition and decreased margins will require major changes to compensation in the coming years. How these changes are made and whether they are aligned with a firm’s culture and values, however, will ultimately determine whether they are accepted and therefore contribute to future success or not.

To learn more about the changes that asset managers must make to adapt to the changing industry, listen to our recent "Key Steps to Cost-Effectively Growing Assets" webinar or download the "Cost Effectively Growing Assets" whitepaper.



Asset Management, Wealth Management


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