Without this information, even the best management teams are flying blind. It's true that new technology can help supply that information, but that's only the ante to get in the game. The real challenge, overlooked by too many managers, has to do with human resources. Then incentive compensation must be revamped in a way that rewards employees for using the tools effectively on the frontline. As their financial performance pulls away from the pack, their stock valuations are following suit.
Asset management exemplifies the deficiencies afflicting banks in their approach to human resources.
Rare is the bank that does not aspire to a more prominent role in this business, lured by fee revenues and high returns on equity. The trouble is, money flows from performance in asset management, and high-performing people are expensive. In fact, one key reason for high returns in this industry is that capital primarily is used to cover heavy compensation expenses for excellent personnel, rather than to support balance sheet assets. Unfortunately, banks frequently choke on the operating costs of this business. Studies have shown that banks generally pay investment professionals one-third less than mutual funds and brokerages.