How Smaller Investment Firms Can Gain an Edge over Larger Competitors

The advantages for smaller companies are there; it’s just a matter of recognizing the advantages and taking action.  

While fee compression may be a big concern for smaller investment management firms, that doesn’t mean you, the wealth and asset manager, can’t maintain your own advantages. 

Sure, larger firms have the resources to scale their business and withstand the downward pressure on fees, but they lack the advantages inherent in being a smaller wealth or asset management company: agility and flexibility. 

Consider the ways smaller investment firms can gain an edge over larger competitors, if not to protect your market share from the Vanguard’s and BlackRock’s of this world, but to distinguish yourself among among the 16,000 listed asset management and investment advice companies in the United States. 

4 Ways Smaller Investment Management Firms Can Gain an Edge over Larger Competitors 

Being Agile and Flexible 

Agility and flexibility are the inherent advantages of being a smaller wealth or asset management firm, and from these two qualities, all other advantages can be derived. 

Imagine your firm as a motorized dinghy boat. Unlike a cruise ship, dinghies react to change very quickly when you steer the outboard motor in another direction. 

When a captain maneuvers a cruise ship, the boat’s reaction time is very slow. When the movement finally gets going, it’s very difficult to undo the changes, should you wish to do so.

The larger competitor is that cruise ship. Things tend to be more rigidly structured, and change is slower. If a team member has a good idea, such as implementing a new portfolio accounting system or trade order management platform, that suggestion must be passed up the chain of the command, and more than likely will result in bottlenecks, dragging out the decision-making process for months, if not years

Even when the companies recognize the good in technological change, for example, it means overhauling an IT infrastructure that has been laid out years ago, quite painstakingly. Changing out of those systems results in further disruption that larger organizations aren’t willing or able to do. 

Your firm is indeed the dinghy. You can maneuver fast and are not burdened by overhead and legacy systems on the magnitude that bigger ones are.  

Yes, you have expenses and resources may be limited, but in leading a smaller organization, you are probably less concerned about formal titles and hierarchy, and more concerned about who will produce and contribute positively to the bottom line. Suggestions to improve the firm should be welcomed and reviewed promptly. 

You understand the importance of “all hands on deck.” If you or your staff has a good idea to implement, there are fewer hoops to jump through, fewer board members to seek approval from. Assuming it fits the budget, you’ll just do it. 

The key is to always keep an eye out for those opportunities and threats, reacting quickly to attain the former and quickly to avoid the latter. 

Leveraging Third Parties 

With limited resources, it’s hard and expensive doing everything on your own.  

But even with limited resources, it’s not impossible to access a high-quality service or skill set you currently lack or otherwise couldn’t afford. 

Being a smaller company, it’s not just that you have the flexibility in seeking out a third-party service provider, it’s also a necessity to find such alternatives to maintain a competitive edge. 

Depending on your needs, there are third parties that handle trading, investing, HR, accounting, IT, legal/compliance, and middle- and back-office operations.  

According to a study from Fidelity, 84% of advisors surveyed had a successful experience with outsourcing, and advisors that outsourced reported higher AUMs and higher compensation compared to those that didn’t. 

As a smaller firm, you can carve out an advantage in a crowded space if only you had more time to focus on what it is that you do best, and that is how third parties and outsourcing can help. 

Being Open to Technology 

Referring back to agility and flexibility, making technological changes is one of those areas where larger companies can run into trouble because they have invested so heavily in infrastructure that cannot be easily changed or uprooted. 

You have an advantage in not being “stuck”, at least not to the extent of a bigger organization. 

And referring again to third parties, it is possible to adopt new systems that can be managed by a third party, should time or lack of expertise be a concern. 

Be open-minded and recognize the advantage you have in being able to pivot. 

Keep an eye out for systems that automate, expedite, customize, and improve data and reporting quality. If any of these considerations increase efficiency and help improve the client experience, then you’re on the right track. 

Focusing on Delivering Genuine, Personalized Service 

This is an area where a larger competitor has a harder time competing. 

When you’re a smaller wealth or asset manager, you’re less likely to take your client base for granted. Clients aren’t handed to you. You know how hard it is to acquire clients and stay afloat, and you have extra motivation to keep clients satisfied. 

It may be a struggle managing an investment firm, but your advantage is that personal service; you just need to be in situations that allow you to be more client-focused. 

One way to spend more time on clients is by outsourcing various functions, which frees up your time. 

According to the study from Fidelity cited above, of the 84% of firms that had a successful experience with outsourcing, 53% of those firms mentioned allowing the firm to “focus on deepening client relationships” was a reason for the success. 

The Advantages Are There for Smaller Investment Management Firms 

Smaller wealth and asset management companies face their share of challenges from fee compression and larger competitors, but the small organizations are by no means rendered helpless. 

The advantages can all be derived from the inherent nature of being flexible and agile that is associated with smaller investment companies. 

When acknowledging and embracing your flexibility and agility, you realize the agency you have in bettering your firm’s position relative to larger competitors. 

You can quickly reach out to third parties and find technology that better serves your organization, as well as putting you in a better position to serve the clients, something the larger, more impersonal organizations can’t do so well. 

The advantages for smaller companies are there; it’s just a matter of recognizing the advantages and taking action.