As we reported in our AWM Revolution report in October 2017, change in the asset and wealth management industry (the ‘AWM industry’) is now accelerating at an exponential rate. Although the industry is set for growth over the next 10 years, asset and wealth managers must become business revolutionaries – even disruptors – if they’re to survive and prosper.
It has been eight months since the report was issued, and the pace of change is increasing daily. In our report, we identified that the AWM industry will be substantially reinvented over the next 10 years, with major changes to fees, products, distribution, regulation, technology and people skills. In fact, we estimate that by 2025, AuM will have almost doubled, rising from US$84.9 trillion in 2016 to US$145.4 trillion in 2025.
There are four transforming trends shaping the AWM industry in the coming years. The first is that the industry is moving to a buyers’ market. With new market entrants and increased competition the more ‘traditional’ value chains will be disrupted. Whilst large players will benefit from scale economies, unless smaller firms can create a niche in their delivery of service, we would expect there to be further industry consolidations. Additionally, there has been and will continue to be greater calls for transparency in the markets. This is being driven by regulation, by investors, by the abundance of real-time data, and by analytics. Therefore, at a time when there is pressure on fees from both investors and regulators, there are competing calls for increased transparency which increases costs. Firms must be agile and become business revolutionaries, or even disruptors to survive. They must be ‘fit for growth’ or they can expect to either fail, or become acquisition targets.
The second transforming trend identified relates to the changing technological landscape –
digital technologies: do or die. Technology offers the AWM industry huge opportunities for efficiencies and improvements, from front to back office. Technological advances will also accelerate and drive changes across the entire value-chain. A number of managers in the industry are already embracing a ‘borrow’ or joint-venture approach with small, innovative FinTech firms acting as catalysts for change and technology. Firms need to embrace technology to prosper in the months and years ahead.
A third trend is funding the future. Due to the financing gaps that have emerged since the global financial crisis, the AWM industry has been the first mover in providing capital to those areas which have fallen short due to bank regulatory and capital limitations. Additionally, they have been the innovators in the provision of capital for real asset classes. With increasing demand from investors for alpha, we predict further opportunities in areas such as trade financing, peer-to-peer lending and infrastructure. We also believe that the AWM industry will play a vital part in bridging the retirement savings gap.
The final trend which we see evolving is; outcomes matter. Investors have found their voice and are clearly articulating what they want from the manager community. They want solutions for specific needs, and not a product which fits ‘style’ boxes. We believe that demand for passive and alternative strategies will grow quickly, and, whilst active management will continue to play an important role, growth in this area will be slower than the growth within passive. As with all of the trends identified, we believe managers need to stay connected to their investor needs and wants and ensure that they are tailoring solutions specific to these needs, and ensure that their focus is retained on the optimisation of distribution channels.
In our recent CEO survey, we identified that 87 per cent of those surveyed were either ‘somewhat or very confident’ about revenue growth in the next year in AWM, with 90 per cent being similarly confident about revenue growth in the next three years. Of those surveyed, 79 per cent identified that organic growth was a priority over the next 12 months, with 57 per cent intending to increase headcount, and focusing on employees with digital skills. However, only 39 per cent said that they intended to cut costs, which was surprising given the intense fee pressure in the US and European markets. Forty-three per cent of those surveyed identified that they are planning mergers and acquisitions in 2018, while 48 per cent intend to expand capabilities through either strategic alliances or joint ventures. Given the changes within the technological landscape, it is clear that senior leadership must understand the next generation of technologies. However, 63 per cent of those surveyed said that they were ‘somewhat or extremely concerned’ about the lack of digital skills in senior leadership and 67 per cent said that they were similarly concerned about a lack of digital skills throughout their business. Yet, despite this concern, only 38 per cent say that they ‘agree or strongly agree’ that they are clear on how robotics and alternative intelligence can improve the consumer experience.
As part of this ‘revolution’, we believe there are three areas where managers really need to focus: strategy, technology and people.
Over the coming months and years, we believe that AWM managers will have to be more efficient and entrepreneurial. They will need to have a clear strategy in mind, and know their differentiating capabilities. They must be bold in their vision, have a long term view and be prepared to make investments in building their businesses strategically.
Within the AWM industry, there is a constant debate about whether the industry is a leader or a laggard in technology. Firms must be prepared to embrace technology (digital do or die!) – whether it’s embedding artificial intelligence into the front office, robotics into the middle and back office or using data and analytics to really differentiate the offering. We believe that technology will be a key factor in determining the ‘winners’ within this AWM Revolution.
As the landscape changes, the AWM industry needs to adjust how it views its people. Going forward, hiring and retention will be more dependent than ever on diversity and inclusion. The whole needs of the person will have to be met. Additionally, as technology evolves, this then will mean that a workforce with a different skill set is required – being one which is focused around data analytics, innovation and also client centricity. An immediate challenge is enabling existing workforces to become digitally fit.
So there’s a clear focus needed by AWM managers on their strategy, their approach to technology and to their people in order to future proof their businesses. Don’t get left behind!
 Asset & Wealth Management Revolution: Embracing Exponential Change available at https://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-wealth-management-revolution.html.
 Asset & Wealth Management Revolution: Embracing Exponential Change.
 All views in this document are based on PwC opinions, supported by third-party verified information.
 PwC AWM Research Centre.
 PwC’s 21st CEO Survey: Optimistic CEOS and buoyant growth, yet disruption looms - Key Findings from the Asset and Wealth Management industry available at https://www.pwc.com/gx/en/ceo-agenda/ceosurvey/2018/gx/industries/asset-wealth-management.html.
Olwyn Alexander Global Asset and Wealth Management Leader
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