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7 Critical Asset Management Challenges and Ways to Solve Them
In today’s fast-paced financial environment, asset management challenges are more pronounced than ever before. Asset management firms are facing a dynamic landscape requiring adaptive strategies and innovative technology to maintain efficiency, security, and value-driven outcomes. From regulatory compliance to effective tracking systems, these challenges demand proactive solutions to meet investor expectations.
This article explores seven key challenges in asset or wealth management – from portfolio diversification to environmental, social, and governance (ESG) trends – and provides actionable solutions to help asset or wealth managers overcome them.
Navigating the complexities of asset management: challenges and solutions
Challenge #1: Portfolio diversification and risk management
Portfolio diversification and risk management remain essential for navigating today’s volatile markets. A well-diversified portfolio reduces unsystematic risk, allowing asset managers to focus on broader opportunities.
However, the growing complexity of asset classes and demand for global and alternative market exposure create challenges. Advanced strategies involving bonds, equities, cash, and alternatives like real estate or hedge funds can help balance risk and return but also introduce greater volatility and risk.
An effective risk management approach combines advanced analytics and strategic diversification, helping you spread risk while meeting the investment goals of your clients.
Solution:
• Use predictive models and data-driven insights to forecast market changes and rebalance portfolio risks accordingly.
• Leverage robust asset servicing technology solutions for valuable portfolio performance insights and streamlined risk management processes.
• Incorporate ESG considerations with emerging investor priorities.
• Regularly assess portfolios to maintain alignment with clients’ investment goals and risk tolerance.
Challenge #2: Regulatory compliance and reporting
Regulatory compliance has become one of the top asset management challenges in the industry. This issue is driven by evolving global requirements for transparency, data security, and precise reporting.
Nearly 50% of asset managers cite compliance as a top industry challenge, with shifting regulations across markets adding complexity.
For example, the U.S. SEC introduced 63 new rules from 2021 to 2023, costing private fund advisors $5.4 billion annually. These demands impact firms of all sizes, with smaller asset or wealth managers facing disproportionate resource and cost burdens.
Solution:
By integrating these strategies, asset managers can enhance their compliance frameworks, mitigate risks, and build trust with clients.
• Review and update internal policies frequently to align with evolving regulations.
• Subscribe to regulatory updates and conduct periodic audits to ensure compliance with industry standards.
• Use AI-driven compliance software for real-time monitoring, reporting automation, and error reduction. Explore tools in our recent article on RegTech trends.
• Foster cross-departmental collaboration to embed compliance into daily business processes and develop comprehensive risk management practices.
• Conduct ongoing compliance training to keep employees informed about regulatory changes and best practices, fostering a culture of compliance.
• Simplify proxy compliance and manage legal documentation efficiently with solutions like Proxymity’s Power of Attorney Management, streamlining proxy voting processes securely and accurately.
Challenge #3: Data management and security
As firms handle vast amounts of sensitive information, maintaining efficient data management and strong cybersecurity becomes a crucial asset management challenge.
A survey by InterSystems revealed that 54% of firms struggle with data errors caused by disparate sources, while over 40% cite timely and accurate regulatory responses as a significant challenge.
Cybersecurity concerns are equally pressing, with the average data breach cost reaching $4.45 million globally in 2023 and $5.9 million for financial services. Furthermore, only 33% of breaches are detected internally, leaving firms exposed to financial losses, regulatory penalties, and reputational harm.
Firms leveraging AI and automation significantly reduce breach costs and response times, but the complexity of hybrid environments—where 40% of breaches occur—remains a major vulnerability.
Solution:
• Protect sensitive information and streamline operations with a robust cyber security framework, leveraging multi-factor authentication tools, user behaviour pattern detection etc. to identify security threats.
• Ensure consistency and accuracy across portfolio analysis, client reporting, and regulatory compliance by consolidating data in a single location. Data analytics tools can also help analyse trading data in real-time to detect early signs of market abuse.
• Improve decision-making and transparency by enabling seamless data sharing across departments rather than maintaining data silos.
• Leverage integrated security master solutions and proxy research during meeting seasons to gain actionable insights and strengthen decision-making.
• During proxy season, select proxy advisors aligned with your governance standards and voting policies to ensure transparency and trust in shareholder voting and corporate governance.
Challenge #4: Tracking and managing assets
Outdated, manual processes like spreadsheets and paper-based systems can be a major asset management challenge, especially when it comes to tracking assets information.
These methods are error-prone, inefficient, and unable to scale effectively for large asset portfolios or user bases.
These limitations hinder real-time visibility into settlement and collateral exposures, leading to delays and increased errors.
Beyond asset tracking, these inefficiencies extend to critical functions like proxy voting and shareholder engagement.
Legacy systems reliant on faxes exacerbate delays, errors, and lack of transparency, underscoring the need for modern, scalable solutions to enhance efficiency and accuracy across operations.
Solution:
Here are key strategies to enhance efficiency, transparency, and compliance in portfolio and asset management:
• Advanced portfolio management platforms provide real-time views of holdings, exposures, and performance, reducing manual errors and improving efficiency. A report by PwC highlighted that tech-as-a-service alone can lead to a 12% boost in revenues.
• Centralising client and asset data into a unified system enhances transparency, reduces duplication, and facilitates compliance. APIs can integrate data from multiple sources for real-time reporting and analytics.
• Transitioning from fax-reliant systems to digital proxy voting platforms, like Proxymity’s Vote Connect, improves transparency, reduces delays, and aligns with shareholder and regulatory expectations.
Challenge #5: Technological adaptation
As we touched upon briefly in the previous section, the rapid evolution of technology poses a significant and ongoing wealth management challenge, with legacy systems often creating inefficiencies and data silos.
Adopting tools like AI, blockchain, and big data analytics requires significant investment and expertise, yet only 39% of managers are preparing their workforce to leverage these technologies, despite 80% recognising their importance to revenue growth.
High costs, implementation complexity, and resistance to change further hinder digital transformation. Additionally, compliance mandates, such as GDPR and MiFID II, add complexity, making it critical for firms to align advancements with regulatory requirements to remain efficient and client-focused.
Solution:
Here are key strategies to successfully adopt new technologies and drive digital transformation:
• Adopt effective change management strategies to facilitate transitions with employee training and phased technology integration.
• Audit existing systems to Identify inefficiencies and gaps through a comprehensive system review.
• Leverage fintech partnerships to accelerate the adoption of AI-driven analytics for personalised portfolio management.
• Focus on scalability by investing in technologies that enhance growth, improve data processing, and streamline operations, including cloud-based solutions.
Challenge #6: Client expectations, personalisation, and communication
Younger, digitally-savvy investors increasingly demand personalised experiences and transparent, frequent communication.
A McKinsey study shows over 70% of consumers expect personalisation. In the realm of investing, ESG-compliant investments and personalised shareholder communication have been heightening this need.
Traditional channels like quarterly reports fall short of client expectations for real-time updates, risking trust and loyalty in an industry reliant on long-term relationships.
Solution:
To meet the growing demands of today’s investors, firms must adopt modern strategies that enhance personalisation, communication, and engagement:
• Leverage advanced CRM systems and data analytics to deliver personalised solutions tailored to client goals, risk tolerance, and preferences.
• Use digital platforms to provide real-time updates on portfolio performance, market trends, and ESG metrics for sustainability-focused clients.
• Prioritise proactive engagement through personalised insights and responsive service, powered by digital tools, to strengthen client relationships and drive growth. Explore our guide on shareholder communications to learn ways to build engagement in this technology-driven era.
Challenge #7: ESG vs anti-ESG investing trends
The growing Anti-ESG movement poses significant challenges for asset and wealth managers.
Legislative pushback in U.S. states like Texas and Florida restricts ESG investments in public pension funds, while states like Montana and Alabama are investigating ESG policies.
This fragmented regulatory landscape complicates global strategy alignment. Client polarisation adds further complexity, as enthusiasm for ESG varies across regions, particularly in the U.S. and France.
Anti-ESG pressures have also influenced proxy voting, with major firms reducing support for ESG resolutions, risking client trust and hindering fundraising for ESG-focused funds.
Solutions
To navigate the complexities of balancing ESG and Anti-ESG pressures, asset managers can adopt strategic approaches to address stakeholder concerns and regulatory challenges:
• Communicate transparently about ESG practices, highlighting financial relevance and addressing misconceptions to bridge stakeholder divides.
• Offer tailored portfolios that accommodate both ESG and Anti-ESG preferences to accommodate client polarisation.
• Monitor and adapt to regulatory changes, such as U.S. state restrictions or EU Sustainable Finance Disclosure Regulations.
• Engage deeply with investee companies to align investments with specific sustainability goals.
• Leverage technology for real-time ESG data and sentiment analysis to refine strategies and maintain stakeholder trust.
How to adapt to an evolving asset management landscape
The asset management industry is undergoing rapid transformation driven by trends like ESG investing, automation, and the rise of passive strategies.
Passive investing, including index funds and ETFs, now accounts for nearly 60% of U.S. equity assets, challenging traditional active management to innovate through specialised strategies or enhanced client experiences.
Automation and AI are reshaping operations, enabling better data processing, risk assessment, and portfolio optimisation. McKinsey reports that firms adopting AI see up to 30% cost savings and improved client satisfaction through personalised strategies.
To succeed, asset and wealth managers must prioritise adaptability and innovation. Embracing technologies like blockchain and digital platforms enhances transparency, security, and efficiency in areas like proxy voting and shareholder communications.
Address your asset management challenges today
Successfully navigating the challenges of asset management demands forward-thinking strategies and the adoption of advanced technology. Addressing key areas such as risk management, compliance, data security, and operational efficiency enables firms to drive asset value while meeting evolving investor expectations.
Firms that leverage innovative tools, embrace sustainability, and strengthen governance frameworks are better positioned for long-term growth.
For instance, Proxymity’s digital solutions offer real-time connectivity for investor communications, proxy voting, shareholder disclosure and monitoring.
Recognised as the ‘best asset servicing technology product’, Proxymity simplifies complex proxy voting processes, freeing asset and wealth managers to focus on investment objectives and delivering sustainable value to clients.
Our user-friendly Investor Portal enables simplified, automated voting capabilities and comprehensive tracking of vote status to ensure your client’s votes get counted ahead of the meeting deadline.
Contact us today to discover how Proxymity’s advanced solutions can support your business.
For further insights into adapting to industry changes, explore our resources on ESG integration, technology adoption, and corporate governance issues.