Asset managers worldwide will need to cut fees and adopt new business models in order to maintain the same long-term ratio of fees and returns, according to a white paper from Casey Quirk.
A practice of Deloitte Consulting LLP additionally noted that increasing government regulation of investment advice providers and disruptive technologies circumventing traditional asset managers would pose long-term challenges.
According to the study, the current state of the industry was dominated by lower capital market returns, shrinking growth in assets to manage, and widespread portfolio de-risking.
On top of that, the organic growth had slowed from an average rate of 3.5 per cent annually before the 2008-2009 financial crisis to 1.7 per cent from 2009-2014, with China’s asset management market being an exception.
Casey Quirk also forecast that median profit margins for asset managers would drop from 34 per cent to 28 per cent in five years.
Therefore in order to survive, the asset managers should adopt the following changes to their strategies:
- Allocate resources away from outmoded product lines and client segments experiencing outflows to new growth initiatives and buyers expanding more quickly;
- Streamline operations for efficiency and ability to bring on new skills and technologies through mergers and acquisitions;
- Differentiate investments with a broader array of active capabilities and strong product development processes;
- Digitise distribution to reduce costs and more directly engage with customers; and
- Build a consumer-oriented fiduciary brand.
“Asset managers face the strongest headwinds yet as an industry,” Casey Quirk’s principal, Ben Phillips, said.
“Nevertheless, one-third of asset managers are still growing their market share by embracing new, differentiated strategies that reflect changing realties, as well as supporting products and services that appeal to sceptical investors.
“Some future winners will be names the industry might not even consider now, and many of today’s key players will face consolidation if they can’t or won’t change.”
