090707 Cfo Wealth Asset Management

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


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


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


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


Agenda






6.  Conclusion

7
July
2009
(c)
Dr.
Eelco
Fiole
5/19


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


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


Agenda





5.  The „new“ CFO-Agenda

6.  Conclusion

7
July
2009
(c)
Dr.
Eelco
Fiole
8/19


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


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


Agenda






6.  Conclusion

7
July
2009
(c)
Dr.
Eelco
Fiole
11/19


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


Agenda






6.  Conclusion

7
July
2009
(c)
Dr.
Eelco
Fiole
13/19


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


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


Agenda






6.  Conclusion

7
July
2009
(c)
Dr.
Eelco
Fiole
16/19


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


Agenda






6.  Conclusion

7
July
2009
(c)
Dr.
Eelco
Fiole
18/19


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


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


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

090707 Cfo Wealth Asset Management

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Ähnlich wie 090707 Cfo Wealth Asset Management

Ähnlich wie 090707 Cfo Wealth Asset Management (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

090707 Cfo Wealth Asset Management