Fundamental change is accelerating
The period of the tailwind of rising asset prices, growing AUM, and stable fees is over. After more than 20 years, the Asset and Wealth Management industry takes an entirely different road.
Reasons for change? The forces of regulation, technology, and fierce competition account for main drivers of the change, which started after the financial crisis 2008-2009.
What will be happening next? The trend of reinvention will accelerate rapidly in the years ahead, forcing the industry to adopt new ways of functioning.
The prospective huge growth in the industry
The prospective growth is due to the increasing wealth of high-net-worth individuals, the mass affluent, and a pronounced shift to defined contribution retirement saving.
With an average annual growth of 6.2%, global AuM should reach US$145.4 trillion in 2025. The growth will be uneven – the slowest in developed and fastest in developing markets.
The highest growth rate is expected to be among sovereign wealth funds (SWF) at 7%, followed by pension funds 6%.
The projected growth of AuM in the period 2020 to 2025 in trillion:
Maximal transparency required
Investors and regulators are asking for maximum disclosure. They’re also increasingly differentiating alpha and beta.
Investors are seeking clarity as inexpensive forms of beta become easier to access. Greater transparency is revealing where asset managers add value, allowing institutional investors to more aggressively negotiate down fees for specific outcomes and retail investors to benefit from fee competition.
The shift of power to investors
Increased regulation, competition, and new entrants are disrupting traditional value chains. Regulation and knowledge are empowering investors, and fees are being pushed down.
As technology, data, and analytics reveal everything, including if a value is truly added, investors insist on cheaper and more innovative solutions that will deliver outcomes matching their requirements precisely and result in increased returns.
This buyer’s market will lead to many more innovative outcome-based solutions for investors.
Use of digital technologies is not an option, but a “must”
The asset and wealth management industry is quite lagging in the use of digital technology. But this is about to change and the technology advancements will drive a dramatic shift in every aspect of asset and wealth management.
Significant growth of passives and alternatives
Investors want solutions for specific needs and specific outcomes. Multi-asset, outcome-driven solutions increasingly include environmental, social and governance outcomes.
The forecasts say that demand for passive and alternative strategies will proliferate. Active management will still play an important role, but its growth over the near term will be slower than passive´s.
Source: “Asset & Wealth Management Revolution: Embracing Exponential Change” Report. PwC.