Asset & Wealth Management

Drivers

All industries are being shaped by the global Megatends of Globalisation, changing Demographics, Sustainability and Technology innovation.  Shaped by these trends, the pandemic, rising interest rates, a declining economy and volatile capital markets, the Asset Management & Wealth Management sector is being transformed by five major drivers: 

Customer Experience

The growing influence of BigTechs has raised the bar for customer service, with the customer experience shifting online. Customers are demanding a wider array of investment options and an improved, seamless service experience. Digital is now the most preferred channel for clients, closely followed by remote [1]. Yet only 18% of customers say they are very satisfied with the digital experience offered by their primary provider [2].

Customers are expecting greater personalisation, omnichannel access, data & analytics and even integrated banking & wealth management (this preference has risen from 13% in 2018 to 22% in 2021) [3]. With these shifts in customer expectations and behaviour, a number of digital wealth management companies have entered the market to take advantage of this demand.

Trust & Compliance

Regulation is intensifying, especially around cybersecurity, operational resilience, customer data & privacy, anti-money laundering (AML), transparency, ESG and digital assets. Fines are growing. The US Securities and Exchange Commission filed 760 enforcement actions in 2022, a 9% increase over the prior year. Enforcement actions totaled $6.4 billion which is the highest in SEC history, up from $3.8 in 2021 [1]. 

Finanical Services has seen a 35% increase in fraud attempts through digital channels during the crisis [2]. 

Innovation

Front-to-back digitisation is paramount to achieve greater efficiency, provide new digital services and deliver a superior customer experience. Overall, firms will need to develop access to real-time data, streamlined workflows, and multichannel and digital tools. Failing to innovate is a major issue as banks have been hamstrung by legacy systems (spending 75% of IT budgets on legacy support) [1], stifling regulations and an inability to change due to lack of expertise and cultural inertia.

Asset and Wealth managment firms will come under increasing pressure to focus investments on sustainable projects both from a climate and resources perspective (ESG, sustainable or green financing). ESG investments will exceed $53 trillion by 2025, representing a third of the projected assets under management (AUM) [2].  They will also need to develop their capabilities in digital assets and portfoilio expansion as 70% of HNWIs have invested in digital assets [3].

Historically, asset & wealth management firms catered to HNWIs with personalised, fee-based approaches and general retail clients with a broad product range. A new segment is the mass-affluent, defined as having assets between $250,000 and $1 million, and which now accounts for 11% of the global population [4]. Only 27% of wealth firms serve this segment, but with the mass affluent in the US alone expected to control over $47 trillion by 2025 this is a key growth market, demanding a new service and product model [5].

Efficiency

In the last ten years, the industry’s cost base has grown at about 6 to 7% per year, double the organic growth of assets in the sector [1]. Operating margins vary widely across the sector but average 37% [2]. Categories that contributed most to 2021’s cost increase were investment management, technology, operations, and legal and compliance. Nearly 70% of all cost increases over the last decade have been directly related to people costs [3]. While companies have continued to invest in technology and seek greater scalability and efficiency in their operating models, the reality is that with greater business complexity has driven up costs. To deliver greater efficiency firms will need to fundamentaly reengineer their operating models, enabled by technology.

Resilience and hybrid working is also critical on the back of COVID-19, with up to 82% of workers having to work from home during the crisis [4].

Profitability

Global markets hit an inflection point in 2022. The industry’s revenue pool grew to $526 billion, more than doubling in size from ten years ago [1]. A decade of relative calm following the global financial crisis—including two years of supernormal returns after the initial shock of the pandemic—gave way to a new reality of supply-side disruptions, geopolitical tensions, and surging inflationary pressures.

Asset Managers have recalibrated their assumptions about pricing risk across the investable universe. The reset button has been hit for nearly every major asset class. The sectors’s clients—institutional, corporate and consumer alike—are under pressure as they cope with reopened funding gaps and anemic asset class return forecasts, which will impact future revenue growth and potential net outflows of AUM.

The unpredictable new normal driven by inflation, uncertain geopolitics and a focus on climate change will mean continued volatility and need to focus on margins.