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Differentiate or make $22 mil

By Steven Miyao

G Richard Wagoner Jr, CEO of GM, made $22 mil over the last 5 years. How can a firm and a CEO be allowed to lose $8.6 billion, or $15.13 a share? The car industry should be an important warning sign for the Asset Management industry. Most US car makers don't offer cars with differentiating features that people want to buy. At the same time, they have a labor force that is deemed too expensive to produce the cars cost-effectively.

In our industry, most Asset Managers also have trouble developing differentiated products and firms are not looking at the profitability of their distribution relationships.

Why can the Mini and the Hummer sell at the suggested retail price and their customers will put themselves on a waiting list to get the car? Because they are different. The Mini is the smallest and the Hummer is the biggest car. They don't try to be a car for everyone. Asset Managers need to take the same approach. Develop products and a brand that people care about. In order to do that firms can't go the safe route and try to appeal to everyone. Advisers need to tell a story to their clients. Asset mangers need to provide that story to them.

On the profitability side firms need to evaluate their distribution relationships and the cost structure to support that. Firms need to look at net new revenue added and the profitability rate, which need to be considered both for existing assets as well for assets that will be gathered in the future. Only by going through this exercise can firms ensure focus on the most profitable relationships.