Sep 11, 2023

Shifting To Client Revenue

Luke Tones
Shifting To Client Revenue

The asset management industry needs to shift from assets under management (AUM) and Flow to client revenue business performance metrics.

In any industry, but particularly for asset and wealth management, the perception of business performance by clients, sales teams, business units, and marketing campaigns varies significantly depending on the metric used. Yet, insufficient consideration is often given to how suitable the metrics are for the task at hand.

Managers put a considerable amount of value on AUM as a metric. And in recent years, in addition to gauging the firm’s size, it seems to have become the de facto standard of how well a firm is performing. In reality, it is only a measure of a team’s asset-gathering muscle.

Historically, the investment management industry has been content to use a combination of ‘blunt instruments’ like AUM — as well as gross and net flows — to make decisions about resource allocation and prioritisation decisions, whilst privately admitting these measures throw up dozens of false negatives and positives.

Transitioning to effective revenue metrics

However, not everyone is comfortable with this status quo. In the past few years, industry leaders have been quietly investing in data and BI capabilities to measure performance with ‘smart numbers’, including projected revenue and actual net revenue by the client. Achieving this requires a joined-up data strategy and strong sponsorship. Yet, the increase in correlation with shareholder value can be profound. Early adopters of these measures have confidentially said that moving to client revenue metrics has helped them identify and eliminate waste and sub-optimal activity earlier, as well as providing a laser focus on a true north of client value.

The problem is best visualised above, where we can compare the relative importance of clients using different metrics.

In this example, it is clear to see how the position of Aiviq’s top 10 clients when using Net Flows contrasts with our Revenue metric. Under Net Flows, our top client is ‘D’, whilst under the Revenue metric, Client ‘D’ is the ninth most important client, with AllFunds rising to the top from being fourth under Net Flows. Similarly, Client ‘A’ appears as the second most important client under Revenue whilst it did not even appear in the top 10 under Net Flows.

The sheer difference between the relative performance of clients under both metrics underscores the importance of transitioning away from blunt instruments toward effective revenue metrics.

However, the shift to calculating and publishing client revenue metrics on a production basis can be complex and challenging to achieve.

To discuss how your business can move from blunt measures to smart numbers like client revenue metrics, get in touch with Aiviq today.

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