090707 Cfo Wealth Asset Management

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This MBA-presentation speaks to the changing role of the CFO in wealth and asset management

This MBA-presentation speaks to the changing role of the CFO in wealth and asset management

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  • 1. The Future of Banking and Finance The MBA Summer School 2009 The  Post-­‐Crisis  CFO  in     Wealth-­‐  and  Asset  Management  (?)   Dr. Eelco Fiole St. Gallen, 7 July 2009
  • 2. The Future of Banking and Finance The MBA Summer School 2009 Preamble  (1/2)   This presentation: Focuses on mid-sized Wealth- and Asset Managers Does not take into account potential regional or cultural differences Is only an attempt and might not be complete Reflects the speaker’s personal views only And is meant to open or contribute to a discussion….. 7  July  2009   (c)  Dr.  Eelco  Fiole   2/19  
  • 3. The Future of Banking and Finance The MBA Summer School 2009 Preamble  (2/2)   As an introduction, just look at the first 12 minutes of this CFAI-webcast*… Firm Management: a Key in Selecting Managers (CFA-Institute, 2009) *This file is approx. 130 MB and may take a short while to download; the movie itself takes 55 minutes 7  July  2009   (c)  Dr.  Eelco  Fiole   3/19  
  • 4. The Future of Banking and Finance The MBA Summer School 2009 Agenda   1.  The Investment Industry: a Perfect Storm 2.  The Current CFO-Portfolio 3.  Corporate Governance: the Territory 4.  Potential CFO-Pitfalls 5.  The „New“ CFO-Agenda 6.  Conclusion 7  July  2009   (c)  Dr.  Eelco  Fiole   4/19  
  • 5. The Future of Banking and Finance The MBA Summer School 2009 Agenda   1.  The Investment Industry: a Perfect Storm 2.  The Current CFO-Portfolio 3.  Corporate Governance: the Territory 4.  Potential CFO-Pitfalls 5.  The „New“ CFO-Agenda 6.  Conclusion 7  July  2009   (c)  Dr.  Eelco  Fiole   5/19  
  • 6. The Future of Banking and Finance The MBA Summer School 2009 1.  The  Investment  Industry:  a  perfect  storm  (1/2)   Issue Consequence   Faced with declined assets Conservative investment attitude, LDI Clients Received “wrong” investment information Fundamental loss of trust in investment advice (fid.) Overpaid fees, especially with hedge funds Demand for lower fees, higher performance net of fees Diversification did not work (correl. to 1) Distrust of financial theory and alternatives Capital markets Recent illiquidity, uncertain future cash flows Unclear in which funds and securities to invest in Unclear de-/inflation scenario Unclear on if and how to hedge Incomplete, dispersed, not up-to-date Increased focus on/cost of transparency and disclosure Law cases of disgruntled investors New risk measures needed, scrutiny conflict of interest Regulations Tax compliance issues Offshore business under pressure; Chinese Walls Pro-cyclical More and exacerbated crisis; rule- or principle-based Structural decline (lower asset base) Structural lower gross profitability Low interest rate environment Change in pricing models (pay for advice, α and β) Revenues High watermarks unreachable Focus on cost management (fixed/var., outsourcing) Investors unwillingness to pay More equity capital required 7  July  2009   (c)  Dr.  Eelco  Fiole   6/19  
  • 7. The Future of Banking and Finance The MBA Summer School 2009 1.  The  Investment  Industry:  a  perfect  storm  (2/2)   Issue Consequence   Management practices questioned Increased transparency and disclosure Discussion on compensation Less tolerance for deviating behavior (social resp.) Reputation Misalignment of interests Increased focus on knowledge and skills Due Diligence did not work Further professionalization and prudence Some statistics Global equity-market capitalisation plummeted nearly 50%, DJ AIG Commodities benchmark plunged 55% since 2002 DJ Global REIT Index plunged 60% since 2007, AuM in hedge funds tumbled by 25%, in Swiss wealth management by 26% Bear market wiped out USD 15 trillion in assets, 15 years of capital gains were wiped out in 15 months No. of HNWI (> USD 1 million) dropped 15% to 8.6 million, no. of UHNWI (> USD 30 million) dropped by 25% to 78’000 46% of HNWI clients said they lost trust in their primary advisor and 78% lost trust in regulatory bodies Asset management revenues have come down by 35% or more; wealth management revenues 24% (y-o-y) Compensation has risen 15% CAGR in the last decade, irrespective of inflows Changing Industry Structure and Business Models Sources: Merrill Lynch/CapGemini World Wealth Report 2009, Future of Investment: the next move? – Create Research 2009, Winning in Wealth Management, Deloitte 2009 7  July  2009   (c)  Dr.  Eelco  Fiole   7/19  
  • 8. The Future of Banking and Finance The MBA Summer School 2009 Agenda   1.  The Investment Industry: a Perfect Storm 2.  The Current CFO-Portfolio 3.  Corporate Governance: the Territory 4.  Potential CFO-Pitfalls 5.  The „new“ CFO-Agenda 6.  Conclusion 7  July  2009   (c)  Dr.  Eelco  Fiole   8/19  
  • 9. The Future of Banking and Finance The MBA Summer School 2009 2.  Current  CFO-­‐PorTolio  (1/2)   Topic Comment   Periodic in- and external statutory reporting More detailed, more frequent to more agencies Statutory IFRS, local GAAP Consolidation (…), MTM, convergence of standards Accounting New technology XBRL is coming Revenue & pricing analysis Different financial/non-financial Key Performance Management Cost accounting Indicators, different pricing structures needed Accounting Partner accounting, share participation Dir./indir. allocations, fixed/var. cost, ABC, etc. Budgeting, planning, forecasting (De-) centralisation, required detail Financial Process Internal group funding Internal cost of capital, payback models Management Service level agreements Internal transfer of services, outsourcing Management information systems Cube profitability, Financial data integrity Financial Data Asset and liability management Enabling profit making from the balance sheet Management Client relationship management Drivers of client profitability Portfolio management systems Portfolio analytics (Market data systems) Owners, investors, supervisory board “One version of the truth” Financial Senior and Middle Management Increasing complexity, but must be easy to digest Communication Individual employees (scorecard) Information integration 7  July  2009   (c)  Dr.  Eelco  Fiole   9/19  
  • 10. The Future of Banking and Finance The MBA Summer School 2009 2.  Current  CFO-­‐PorTolio  (2/2)   Topic Comment   Corporate portfolio considerations Mergers, acquisitions, divestments Strategic Business area restructuring Turnarounds, program management Management Investment cases Financial holdings, future strategic options Industry & competitor analysis Strategic directions, benchmarking Capital structure management Cost of capital, asset financing Balance Sheet Equity management How much is enough, how to invest Management Treasury / liquidity management Investment, interest-rate and currency management Investment guidelines Client and internal reporting Investment Performance analysis Performance attribution, GIPS Control Regulations MiFID, regulations from various international bodies Regulatory Risk Basel 2 (and 3?), MiFID (2?) Credit-, Market- and Operational Risk Debate on trading, methodologies, risk indicators Risk Control Business Risk Management Organizational compliance, risks owned by the business Liquidity and counterparty risk Rather “new” Tax and transfer pricing policies Pressure from jurisdictions to receive tax income Others Relations with industry at large Representations, influence Auditing (in all shapes and forms) Automation, 4-eye principle, separation of duties 7  July  2009   (c)  Dr.  Eelco  Fiole   10/19  
  • 11. The Future of Banking and Finance The MBA Summer School 2009 Agenda   1.  The Investment Industry: a Perfect Storm 2.  The Current CFO-Portfolio 3.  Corporate Governance: the Territory 4.  Potential CFO-Pitfalls 5.  The „new“ CFO-Agenda 6.  Conclusion 7  July  2009   (c)  Dr.  Eelco  Fiole   11/19  
  • 12. The Future of Banking and Finance The MBA Summer School 2009 3.  Corporate  Governance,  the  Territory   Corporate Governance* 1 2 2 3 4 Topic  area   Topic  area   Topic  area   Topic  area   Law, Finance, Mergers & Management, Arrangements, Accounting, Acquisitions, Sociology, Risk, Disclosure, Investments, Control, Activism, Psychology, Distress, Economics   Actors & Players Compensation, Bankruptcy Organization, Processes Examples   Examples   Examples   Examples   Policy analysis, Tools, methods, Transactions, proxy Management tools, design and effects rules, regulations, fights, corporate negotiations, of laws, decision making, elections, going- entrepreneurship, agency regulation, economic private, hedge fund leadership, corporate policies, performance, activism, boards, internal processes, enforcement, capital structure, shareholders, social norms, litigation, trading (in firm’s gatekeepers, psychological workouts, control securities), etc.   CxO’s, creditors, inclinations, systems, etc.   employees, etc. cognitive New and extra perceptions, etc. requirements…. *After Lucian Bebchuk, Prof. of Law, Economics and Finance, Harvard University 7  July  2009   (c)  Dr.  Eelco  Fiole   12/19  
  • 13. The Future of Banking and Finance The MBA Summer School 2009 Agenda   1.  The Investment Industry: a Perfect Storm 2.  The Current CFO-Portfolio 3.  Corporate Governance: the Territory 4.  Potential CFO-Pitfalls 5.  The „new“ CFO-Agenda 6.  Conclusion 7  July  2009   (c)  Dr.  Eelco  Fiole   13/19  
  • 14. The Future of Banking and Finance The MBA Summer School 2009 4.  PotenXal  CFO-­‐PiTalls  (1/2)   1 Gap between perception and reality Perception Reality   Technical financial accounting focus High level of all-round finance and business literacy To far away from the business to lead Understanding of P&L-impact, well-positioned to lead Steady state Highly dynamic, project management environment Mid-sized and smaller firms do not need much Mid-sized and smaller firms need to conceptually analyze everything and judge (not assume) relevance Understanding of concepts is enough Understanding of concepts, detail and implementation is key CFO-area is pure costs CFO-area represents cost of doing business but can also be net revenue enhancing 7  July  2009   (c)  Dr.  Eelco  Fiole   14/19  
  • 15. The Future of Banking and Finance The MBA Summer School 2009 4.  PotenXal  CFO-­‐PiTalls  (2/2)   2 Organizational dynamics Function Topic   Relationship Management Measurements of productivity, efficiency, quality Portfolio Management Measurements of investment compliance and performance Risk takers Knowingly and unknowingly engaging in potentially loss-making risk taking activities (incl. incomprehensive man. processes) In fact, as the CEO’s co-pilot, the CFO is one of the few generalist, independent managers with a complete overview (oversight) of the business, combined with the goal of not just supporting individual functions but the firm as a whole 7  July  2009   (c)  Dr.  Eelco  Fiole   15/19  
  • 16. The Future of Banking and Finance The MBA Summer School 2009 Agenda   1.  The Investment Industry: a Perfect Storm 2.  The Current CFO-Portfolio 3.  Corporate Governance: the Territory 4.  Potential CFO-Pitfalls 5.  The „New“ CFO-Agenda 6.  Conclusion 7  July  2009   (c)  Dr.  Eelco  Fiole   16/19  
  • 17. The Future of Banking and Finance The MBA Summer School 2009 5.  The  “New”  CFO-­‐Agenda   Accenture/EIU-­‐study  under  182  execuXves  concerning  the  CFO-­‐role  (CFO.com)  showed  that:   79% thinks that strategic financial thinking belongs to top 3 requirements 69% thinks that the CFO should enable senior management to take the best business decision 43% thinks that CFO should take on enterprise risk management Short  ToDo-­‐list…   1 Implement current CFO-Portfolio 2 A 2 C Acknowledge   Enter  into   B Implement CG-Requirements (cont’d) new  Reality   the  Future   3 3 Overcome potential CFO-Pitfalls (c)  Dr.  Eelco  Fiole   7  July  2009   17/19  
  • 18. The Future of Banking and Finance The MBA Summer School 2009 Agenda   1.  The Investment Industry: a Perfect Storm 2.  The Current CFO-Portfolio 3.  Corporate Governance: the Territory 4.  Potential CFO-Pitfalls 5.  The „New“ CFO-Agenda 6.  Conclusion 7  July  2009   (c)  Dr.  Eelco  Fiole   18/19  
  • 19. The Future of Banking and Finance The MBA Summer School 2009 6.  Conclusion   Depending on corporate strategy, the business wants to be alive and kicking after the financial crisis Depending on development stage the CFO-area is in, there is work to do The financial crisis and the CG-discussion makes the CFO more important, certainly for investors, regulators and media Organizational dynamics can support the CFO’s effectiveness The leadership and functional requirements on CFO’s increase With an enabling CFO, a transfer of the firm into a promising future is possible 7  July  2009   (c)  Dr.  Eelco  Fiole   19/19  
  • 20. The Future of Banking and Finance The MBA Summer School 2009 Final  curtain  call   And to get back to earth: a final 8 (or 16) minutes… John Bird & John Fortune on… Investment Management - Part 1 Part 2 7  July  2009   (c)  Dr.  Eelco  Fiole  
  • 21. The Future of Banking and Finance The MBA Summer School 2009 Thank  you!   CORPORATE GOVERNANCE, BUSINESS MODELLING & FINANCIAL TRANSPARENCY FOR THE WEALTH - AND ASSET MANAGEMENT INDUSTRY E ELCO FIOLE PHD, CFA, FRM, CAIA PO BOX 21 8852 ALTENDORF TANGLIN PO BOX 125 SWITZERLAND SINGAPORE 912405 T / +41 76 522 8140 - F / +41 76 516 8140 - E / FIOLE @ MAC . COM Disclaimer: this publication is solely meant to provide information to the participants of The MBA Summer School 2009 of the University of St. Gallen and is no way an offer or invitation to buy or sell investment or any other products. The information and opinions reflected in this document originate from reliable sources; nonetheless, we refuse and dismiss any contractual or implicit liability for incorrect or incomplete information, judgments or estimations. All information, opinions and numbers can be subject to change at any moment without advance notice. 7  July  2009   (c)  Dr.  Eelco  Fiole