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The Forgotten Customer

By Josh Feldmeth, CEO, Interbrand New York
Dan Spiegel, Associate Director, Interbrand New York

Why financial services brands can’t ignore institutional investors

The choppy wake of 2008’s historic financial crisis has ushered in a period of prolonged uncertainty, leaving many industries on a difficult search for new growth opportunities. While some brands have demonstrated a better ability to respond to shifts within this new market paradigm, the financial industry remains in an ongoing struggle to find new revenue to offset increasing costs (see fig. 1).

Chart 1

No doubt, uncertainty within the Eurozone and the looming threat of still more regulation have both played a role in stagnating growth for financial firms. However, these systemic shocks have not only created medium-term growth hurdles, they have—more broadly—distracted firms from yet another seismic shift in the dynamics of the marketplace: the evolving needs of the institutional investor.

The institutional investor has changed, permanently

Quantitative and qualitative data dating back to 2008 tells a clear story: Institutional investor needs have changed. Further, what was once about outperformance is now about solutions, with three factors accelerating the pace of change.

1. The ongoing search for returns
Still reeling from the first decade of the 21st century when the S&P 500, over a 10-year period, produced a net loss of -1 percent, investors have tempered their expectations. The anticipated burden of more financial regulation is also adding to this recalibration. Less confident that they can generate the returns they need through the traditional channels, institutional investors are changing course and looking at new opportunities.

Consider the $673 billion outflow of capital from relative return equity funds over the last five years compared with the $323 billion inflow to solutions-based products (see fig. 2). These types of solutions, developed on a client-by-client basis, offer the investor new tailor-made paths to generate income while hedging risk.

Chart 2

2. Globalization
The financial crisis revealed the degree to which investors were exposed to risk and now, to ensure they are well guarded against unseen threats, many are looking to diversify investments across borders. Those who are looking to win in new markets rely on both a thorough understanding of the opportunities that these markets offer, along with a strong command of the regulatory environment. As one investor we surveyed in Asia put it, “you really need to understand the lay of the land to succeed.” Today’s investors demand a better understanding of the unknown and a comprehensive suite of cross-border solutions to help them win in new markets (see fig. 3).

chart 3

3. Shifting market dynamics
The world is shrinking, aging, and becoming more transparent—and it is happening all at once. Consider the scary reality facing pension plan sponsors. With the population of Americans age 45 to 64 now over 81 million (a new high), those on the hook to fulfill pension obligations throughout the twilight of the baby boomers’ years need a path to profits. In this scenario, relative return is not enough. Outcome-oriented solutions, like income generation, fill the gap left open by lower interest rates, fewer dividends, and the unavailability of guaranteed annuities going forward.

We have been measuring this movement toward solutions for several years now, and the data points to a complete and dramatic reset for the category. In fact, five years ago, when asked what factors they evaluate when choosing investment managers, only 44 percent indicated the ability to deliver complex solutions as “extremely important” (see fig. 4). By 2010, that figure has soared to 77 percent, and will continue to increase in importance. There is no longer any doubt: The ability to deliver specific, outcome-based solutions is an overwhelming driver of choice, a fact that confronts any brand wishing to remain relevant.

"The ability to deliver specific, outcome-based solutions is an overwhelming driver of choice, a fact that confronts any brand wishing to remain relevant."

Chart 4

So, if investors are moving toward solutions, are financial services brands helping them get there?

The answer is no.

Slower to change, quicker to lose

As a market participant, the institutional investor has transformed from an actor, historically concerned with performance and security, into something resembling a consumer, demanding built-to-suite solutions and relevant outcomes. This transformation is complete and irrevocable.

So, why haven’t financial service brands followed suit? The systemic shock of 2008 provided the perfect fulcrum on which to pivot their organizations and brands away from the insular, self-referential posture that has long defined financial services’ brand positioning and stance toward the customer.

They needed to change but unfortunately, many never did and have paid dearly through net asset outflows, lagging share prices, and long-term brand value erosion (see fig. 5). While it’s clear that inaction led to value destruction, the causes underlying their failure to evolve are more complicated.

Chart 5

In our study, we learned that many had the data evidencing the investor shift, and those that didn’t, intuited the movement among their clients. Indeed, many wanted to transform; some even engaged in substantial strategy and repositioning work during the crisis and early recovery (late 2008–2009). But in the end, few large financial services organizations have been able to reposition their brands toward investor-centered solutions.

The limits of transformation can be linked to three inexorable forces that have dominated the financial services firms’ agenda since 2008:


Since September 2008, beginning with the Lehman fall, the Merrill fire sale, and the subsequent TARP bail out—a period one observer called “the greatest bank restructuring since Glass-Steagall”—the industry has been in a nearly continuous state of restructuring.

Asset sales, reductions in force, large-scale cost containment programs, balance sheet restructuring, stress tests—nearly every global player has been forced at some point over the past five years to commit significant discretionary resources to restructuring its business in order to survive.

These resources could have been used differently. Instead of negotiating asset sales, M&A teams could have been acquiring greater capability in consulting and client services. Technology investments could have been made toward improved investor experiences.

Product strategy teams could have spent more time on cross-firm solutions. Marketing efforts could have been adding value through thought leadership instead of rebuilding basic trust.

Firms don’t just have limited financial resources. They have limited focus, as well. The effort required to fundamentally restructure their post-crisis businesses has structurally prevented them from rebuilding organizations around investor solutions. Five years on, institutional investors have evolved while their potential service providers have labored simply to rebuild.

"Five years on, institutional investors have evolved while their potential service providers have labored simply to rebuild."


Today’s institutional investor is demanding solutions, but financial services providers were built to perform against a different set of metrics. In order to win, they must retool.

However, retooling an organization’s technology, process, and culture to think and behave in terms of client outcomes takes time. Despite the efforts of many organizations, our experience is that retooling is not keeping pace with the rate of transformation among institutional investors.

One reason is obvious. Retooling equals change. Delivering solutions require new skills that senior talent often lacks or is slow to adopt. The process of delivering solutions is fundamentally different than delivering performance: it is horizontal, cutting across systems and teams, rather than vertical. These changes not only affect how the firm goes to market, but also the types of people and behavior it rewards.

Another potentially less obvious factor is increased regulation, which is having an unintended negative effect on a brand’s ability to retool. Further, the act of communicating to customers is appreciably more challenging today. In-house counsel is conservative and marketers feel handcuffed, creating a slow and tortured marketing process that blunts a brand’s ability to make a customer commitment. It’s the old catch-22; institutional investors need to hear from financial services brands that those brands are paradoxically less free to communicate.


Dozens of studies have documented the decline in investor confidence and trust in the financial system and its institutions. Protracted restructuring and continued balance sheet vulnerabilities keep these brands on the front of the financial pages. The sputtering recovery is a constant reminder of what caused the problem in the first place. And a string of scandals—from rogue traders to FOREX litigation, Ponzi schemes to executive compensation—weighs these brands in the past.

This is reputational resetting: Every time the brand makes progress toward repairing its standing, a fresh crisis pushes it back. Financial institutions have suffered significant reputational damage that they must repair. Fortunately, there is a simple formula to remedy that: Confront the problem, apologize for it, fix it, and demonstrate that it has gone away. It’s a formula that has been validated over decades (see Tylenol, Toyota, Martha Stewart, etc.).

Adapt. Or die.

No doubt, firms must reengineer to deliver a truly customer-centric value proposition if they intend to meet growth requirements and fend off new entrants to the market. Doing so cannot be an exercise in cosmetics. It will take investment and vigilance.

But, it can be done and the playbook is clear.

How financial firms can deliver a truly customer-centric value proposition:

1. Build insights capability
Leverage Big Data as a core capability

2. Scale specialty:
Deliver deep specialties across a unified global platform

3. Connect the dots:
Integrate marketing with thought leadership and the client experience to add value

4. Reset rewards:
Change culture, competency model, and rewards systems to reinforce a solutions-over-performance mentality

Build insights capability
Big Data, if leveraged correctly, is a game-changing opportunity for financial firms desperate for richer customer insights and a competitive advantage in the race to better serve investors. According to a study conducted by the McKinsey Global Institute, securities and investment services firms actually store the largest amount of data per firm of any industry on Earth (see fig. 6).

Chart 6

The magnitude of this data, garnered from an immense amount of transactions conducted every day, is matched only by the magnitude of the possibilities the data presents. Being able to harness it to derive meaningful client insights provides the most impactful path to understanding shifts in the customer’s needs. To use Big Data as an investor advantage, these firms will need to take a page from the playbooks of brands like Amazon and Google, and use data strategy to drive consumer outcomes.

Scale specialty

As has been the case in many industries over the last decade, finance has made a movement toward both consolidation as a business model and product breadth as a strategy. Today, the market is awash with large one-stop-shop firms that were pieced together in an effort to achieve more scale. However, the strategy of scale is largely self-serving. It enables the firm to take cost out of the business and command greater pricing power, but the investor is left to navigate an increasingly complex and slow-moving institution.

Financial firms have the assets they need to construct more sophisticated solutions for customers, but accomplishing this requires speed and nimbleness. Over the coming years, the winners will increasingly be those who are able to nimbly orchestrate their own portfolio of products and services to respond to customer needs, producing legitimate outcomes.

Specialty solutions, like the boutique model with its lean organizational structures and manageable asset levels (exemplified by companies like Franklin Templeton), will need to increasingly take form in the finance industry to enable firms to act more quickly toward delivering solutions built around the customer—not around the firm’s capability.

Connect the dots

Many financial firms continue to view marketing departments as sources of communication rather than designers of the total investor experience. This issue is a structural one, and can only be changed by rethinking the role that marketing plays and where it sits within the company.

Consider IBM and the way it has positioned itself around key members of the C-Suite. The brand promises a “Smarter Planet” and makes good on the claim by targeting specific members of the executive committee with value-adding thought leadership (like the Global CEO Study, and forums, such as the CMO CIO Leadership Exchange, where high-level client peers exchange ideas that not only make the planet smarter, but equip the client to be more successful). This is integrated marketing: thought leadership, connected experiences, and client-centered solutions, all rolled into a powerful message of relevant outcomes (i.e. Smarter Planet).

The issue for financial firms transcends the need to refocus claims around the customer; these firms must work to make material changes to the way they conduct marketing, to move from communication capability to integrating the investor experience.

Reset rewards

Evolving from a performance-based company and culture to one that is solutions-based requires capability and mindset change—and won’t simply happen in an offsite meeting or e-learning module.

Competency models must change. Performance management will need to evolve. Compensation and bonus structures will be realigned to incentivize new behaviors.

Putting the customer at the center is easy to say, but often hard to do. The only path forward is large-scale cultural transformation—a shift away from the traits that long characterized these types of firms, such as competitiveness and control, and a doubling-down on things like innovation and collaboration.

A final thought – it’s a journey

It’s important to remember that the journey toward an investor-centric brand will never end. One of the world’s great brand managers, P&G, has been working at this since 1937, and only created the category management function in 1987. And they continue to learn today, as their target consumer segments shift in a globalized marketplace.

The lesson here: Being investor-centric is a step toward continuous movement. Markets will continue to roil and investor needs will continue to evolve. The only constant will be change itself. And it is in this process of transformation, that the greatest brands find vitality, purpose, and the power to change their world.

Note: This is an abridged version of a white paper, "Focus on the Institutional Investor," by Josh Feldmeth and Dan Spiegel. To read the white paper in its entirety, please click here.

Their paper is based on a five-year quantitative and qualitative study that began in 2008. The study included interviews with boards, chief executive officers, and leadership teams of some of the largest financial services institutions in the world. These interviews were supplemented with deep global quantitative analyses, longitudinal financial and brand analyses, and business reviews of financial service institutions in over 30 markets around the world.


    Josh Feldmeth is CEO, Interbrand New York, San Francisco and Toronto.

    What’s one thing you would change about the world if you could? Josh answered: "Higher salaries for teachers."
  • Dan Spiegel is Associate Director, Strategy at Interbrand New York.

    What’s one thing you would change about the world if you could? Dan's answer: "Less time outs at the end of close basketball games."
  • Josh Feldmeth on Big Data
  • Dan Spiegel on Internal Brand Engagement