Carte blanche

“The challenge of the asset management industry ”

10 Mai 2018 Par Michael Ferguson (EY)
Michael Ferguson EY
According to Michael Ferguson, “focus on ‘value for money’ by both institutional and retail investors continues to drive fees lower while at the same time increasing demand for greater product risk transparency and disclosures.” (Photo: Lala La Photo)

Since recovering from the aftermath of the 2008 financial crisis, the asset management industry is faced with the challenge of transforming itself through a combination of market forces and megatrends.

This includes: new investor and other stakeholder demands, technology and digital innovations, a significant shift in the flow of assets from active to passive funds, increasing fee and margin pressure, macroeconomic factors. Taking a closer look at some of the megatrends makes change imperative:

1. Fee and margin pressures

Focus on “value for money” by both institutional and retail investors, in addition to pressures from regulatory, political and public bodies, continues to drive fees lower while at the same time increasing demand for greater product risk transparency and disclosures. Pricing of products is expected to fall, with an underlying drive for price being much closer aligned to performance, and that performance being measured over a multi-year period. As a result, the “traditional active” managers have begun to introduce new pricing models, many of which borrowed from the alternative sector.   

Additionally, “value” is no longer simply viewed in terms of risk-adjusted net returns, but must incorporate a range of criteria including overall client service, digital engineered reporting and, in particular, whether the product delivered on its initial objectives.

Fee and margin pressures have begun and will continue to drive consolidation across all parts of the industry, with size being seen as a critical factor in being able to offer a competitive range of products to reach the key distribution channels. 

2. Value of brand and trust 

The top 10 asset managers are on average attracting 70% of all new net asset flows. This winner-takes-all phenomenon is increasing the so-called barbelling within the industry, with certain managers concentrating on passive related products, including exchange-traded funds, with others concentrating on alternatives including private debt, hedge, real estate, private equity and infrastructure.  

Younger generations appear to trust non-financial services brands more than traditional firms, thereby potentially creating an opportunity for new entrants into the industry’s ecosystem, provided they are willing to take on the regulatory and risk management requirements. The most likely outcome will be that these non-financial services brands will partner with the global asset management brands to try to reach new investors including the millennials. 

3. A significant shift to alternatives

Product innovation over the coming years will be driven by a combination of: relatively low interest rates in the major economies, increasing aging populations in developed countries, the need for asset protection, the continued shift in retirement funding from the state or the employer to the employee. Managers will need to re-focus on their product range with a significant shift to alternatives through a combination of acquiring firms and teams.

4. Technology and digital 

Technology and digital developments continue to revolutionise every part of value chain, covering manufacturing, operations and distribution.

This includes developing digital tools to facilitate product distribution via financial advisors in intermediary channels, as well as distribution directly to investors.
Managers seek to use alternative data aided by machine learning and artificial intelligence to improve the investment process.

Robotic process automation offers the opportunity to highly automate processes

Michael Ferguson, Luxembourg wealth & asset management leader, EMEIA wealth & asset management assurance leader, EY

Distributed ledger technology and blockchain have the potential to transform custody and clearing and further drive cost bases lower.

Robotic process automation offers the opportunity to highly automate processes such as net asset value calculations, portfolio valuations and reconciliations in a cost efficient way. According to the Institute for Robotic Process Automation, a single robot costs approximately one-third of the cost of an offshore full-time employee, and initial industry studies show that costs can be recouped in as little as six months.