Amilah Costandius, Senior Manager – Strategy @ Monitor Deloitte, Industry co-lead: Long-term Insurance, Savings and IM

 

Overcoming structural challenges through deliberate choices

 

The investment management (IM) industry in South Africa has grown significantly in recent years, driven by a combination of social and economic factors, along with the maturation of the regulatory landscape. South Africa’s market infrastructure and the regulatory environment for the industry are widely considered world-class, and continue to evolve. Collectively, this has resulted in a more competitive environment, better products, and a safer environment for clients.

 

Despite this growth, there are hard-to-ignore structural challenges that will impact the industry in the years to come. From a macro perspective, the global economic landscape, coupled with the challenging political and economic landscape in South Africa threatens the assets under management (AUM) and flow growth in the industry. From an individual market participant perspective, IM companies are finding it harder and harder to distinguish themselves in the market amid high levels of competition and perceived homogeneity of products. Similarly, not all IM companies have invested in data and technology over the past decade, to absorb the downward pressures of fees and cost of compliance.

 

These factors lead to structural changes such as the increased market share of passive investments, a rapid increase in mergers and acquisitions (M&A) transactions, bundle product offerings and industry convergence, among others, which in turn results in a large-scale scramble to compete on experience while underestimating the investment required to do so. This leads to many IM companies equating client experience to servicing or building products based on what they assume clients would want or need, in an effort to keep costs low – which often leads to failed product launches. While many IM companies compete effectively on the client experience, many have invested only in technology, or people, without doing the necessary research to understand the client or having invested in the data structure to understand existing client behaviour.

 

Given these changes, coupled with the challenging environment, choosing to choose should be the focus of 2023 for IM companies. Market leaders will make a deliberate choice to stop creating product and experience permutations for every single possible client, thereby reducing brand confusion and unnecessary operational expenditure in the process. Market leaders will make deliberate choices over which clients they serve (and those they will not serve), and what their unique value proposition is to the market.

 

There are factors that market leaders need to take into account when making their choices. Choosing client segments involve understanding clients from a behavioural and needs perspective, and responding to the needs of a chosen client segment requires deliberate focus.

 

There are four major domains to compete in – performance, experience, product design and innovation, and fees. There are key considerations in each domain, and technology, operating model and regulatory compliance underpin each as a foundational consideration.

 

Choices, and the reiteration of choices, are crucial at this point of the industry’s development to create the next wave of improvement and innovation. Choices as a plural is implied, as the interdependency of choices in this particular industry cannot be ignored, but simultaneously, should be in moderation. Competing on all fronts is not a viable strategy, but choosing to compete in one domain also does not mean wholly ignoring the others.

 

Change is difficult. Doing things the way they have always been done is comfortable, but it stifles innovation. Our view for 2023 is that the industry will shift into deliberate choices and more market leaders for certain domains will begin to emerge. Given the economic context, and the steady decline of margins under the reality of many perceived homogeneous products, the stage for innovation and improvement is set.

Content summary – download the full report below

 

Download the full report:

 

ENDS

 

Amilah Costandius
Senior Manager – Strategy | Monitor Deloitte
Savings and Investment Management sector KAM

Robbie Quercia
Director
Investment Management Sector Advisory Leader
Deloitte Africa

Andrew Warren
Director
Insurance Sector Advisory Leader
Deloitte Africa