Short term pain, long term gain - Upcoming challenges for HR and Reward functions in Asset & Wealth Management

Market performance and compensation go hand in hand in the Asset & Wealth Management (AWM) sector. Stagnating markets will bring significant challenges to HR and Reward functions.

The asset management sector is no stranger to change and transformation. At our recent Asset Management HR Network event, we discussed some of the emerging trends in the industry and the people-related challenges faced by organisations.
Coming out of 2017, global markets were up more than 20% (MSCI World Index), recording a steady upward trend during the year. Our research indicated that top line revenues and Assets Under Management also experienced double digit growth. Compensation costs have been controlled whilst other costs of business have been tightly managed, resulting in both operating and net profit margins improving materially.

The picture in 2018 was starkly different. Both markets and the stock prices of many asset management businesses have shown a significant decline for the year. Recent months have shown continued deterioration against the backdrop of volatile markets and outflows for many firms which, when translated to the current compensation round, means the phrase ‘expectation management’ will be used frequently.

Although we are predicting little to modest change in incentive pools at an aggregate level, given the increases in headcount we have seen across the market in the past two years, we expect incentive compensation to be lower per head for many firms. Without an improvement in market conditions over the next 12-18 months the 2019 compensation round will be even more challenging as firms lose most if not all of the financial benefits of 2017’s strong market performance.

This is just one of a number of challenges currently facing HR and Reward teams. Another is talent:
Short term pain, long term gain

Our recent report, “Pressure on profitability”, shows that younger generations are increasingly looking to work for companies that reflect their personal values, challenge them, and offer both work and life opportunities. It also highlights the need for tech savvy talent in a widening array of roles. The industry will need to fundamentally reconsider its culture in order to entice new talent to join, as well as upskilling and reskilling the existing workforce. Also, businesses will need to move from siloed working groups to integrated, multiskilled teams. These changes will come with costs but also will produce value in the long run.

Using Our 'Workforce of the future' study we have explored four potential future ‘Worlds of Work’ for 2030 to help kick-start thinking. Global megatrends provide a context for the future of work but they don’t dictate the shape or features at a specific point in time. How humans respond to the opportunities and challenges which the megatrends bring will determine how the future of work plays out. There is a very real need to plan seriously for future scenarios and our thinking has led us to think about four possible worlds of work you should consider:

Yellow world - Social-first and community businesses prosper

Red world - Organisations and individuals race to give consumers what they want

Green world - Social responsibility and trust dominate the corporate agenda

Blue world - Big company capitalism rules as organisations continue to grow

Will ‘me first’ prevail, or will societies work together through a sense of collective responsibility? Will digital technology inevitably mark the end for large companies? Technology has allowed tiny businesses to tap into a vast reservoir of information, skills and financing that used to be available only to large organisations. Through the use of technology, small has become powerful.

For more information or if you would like to discuss in further detail, please contact me.

Duncan Nicholls | Director
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