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For the past decade, growth in assets under management (AuM) has been buoyed by the tailwind of strong market returns. Even before the increasing concern about COVID-19, geopolitical and economic uncertainty was building, the squeeze on fees intensifying, and investors were focusing ever more closely on environmental, social and governance (ESG) factors. Asset and wealth managers now face the acid test of whether they can deliver in unpredictable times. How can you ensure your business is ready for 2020?
Although the waters ahead look choppy, there are still many opportunities on the horizon. We at PwC expect AuM to reach US$145tn by 2025. We’re also seeing a global transition to individually funded defined-contribution plans, which is changing the way investment decisions are made and products are distributed. Increasing affluence and expanding populations in fast-growth markets are also creating fresh investment opportunities and increasing demand for asset and wealth management (AWM) services. And large markets such as China, which are now opening to foreign managers, present particular possibilities. According to PwC’s 23rd Annual Global CEO Survey, China ranks just behind the US as the market that AWM CEOs see as most important to their growth prospects over the next 12 months. To seize all of these opportunities, though, you’ll need to sustain performance and investor confidence when the going gets tough.
PwC’s CEO survey shows that there has been a shift in the list of concerns that keep AWM CEOs awake at night since our 2018 survey. The favourable market conditions that characterised most of the past decade can no longer be taken for granted. Geopolitical uncertainty has replaced over-regulation as industry leaders’ biggest worry. More than half of AWM CEOs also believe that global economic growth will dip in the coming year, a big change from the positive sentiment we saw two years ago.
PwC’s recent survey of investor concerns and expectations reveals that their priorities are shifting too. The macroeconomic and political environment is now investors’ number one priority, ahead of risk–return. Institutional investors are increasingly seeking out one-stop multiasset mandates too. This is likely to accelerate the pace of consolidation, collaboration and platform development. ESG is setting new benchmarks for investment. And in addition to lower fees, investors now expect transparency and engagement to be assured that managers have the strategy, talent and operational capabilities to steer through the storms ahead.
AWM firms that fail to keep pace with investors’ demands will be left behind. ESG, in particular, is an opportunity for differentiation and growth if it can be embedded across the organisation, but addressing it in earnest requires considerable investment in talent.
Because of this uncertainty and change, you may feel that you should be more cautious in your portfolio construction, but this approach could harm returns. You have to balance caution with a continuing effort to seek out high risk–return investments to make up for enduringly low interest rates. If active managers can’t outperform passives in this difficult environment, the squeeze on fees will escalate and the switch to passives will accelerate.
Improving investor experience is another way to respond to changing expectations. This year’s CEO survey shows that customer experiences top AWM CEOs’ investment priorities for the coming year, highlighting the extent to which that capability is rising up the boardroom agenda. CEOs also say that having a clear vision of how to create value for customers is the most important enabler in helping them realise strategic goals.
This year’s CEO survey shows that customer experiences top AWM CEOs’ investment priorities for the coming year.
PwC’s 2019 fintech survey, which included responses from financial services (FS) organisations in addition to technology, media and telecommunications (TMT) firms, highlights the importance of setting the right bar for customer experiences. Most AWM and other FS organisations primarily view fintech as a way to improve ease and speed within their markets. By contrast, TMT firms have set the bar higher by harnessing fintech to personalise the services they offer and deliver a superior experience.
Could your business adopt this more ambitiously customised TMT approach — using digitally enabled profiling to build investment portfolios around a client's appetite for ESG or alternatives, for example? If so, what talent and technologies would you need to deliver the necessary customer insight and agility?
Fundamental technological improvements across the enterprise, including digital enhancements, are important to improving customer experiences because they help to provide a true front-to-back view of investor demands and how to meet them. And core technological transformation and a shift to the cloud (including application programming interfaces and third-party integration) go hand in hand.
Workforce upskilling is equally critical in meeting customer expectations and making the most of new systems capabilities. Although PwC’s CEO survey reports that most AWM firms are making some headway, less than 20% report significant progress in key areas such as defining the skills that will drive future growth strategy and improving workers’ and leaders’ knowledge of technology.
Four key priorities stand out for both scale and niche players:
It’s important to balance financial performance with an organisational mission that reflects investors’ changing priorities in areas such as sustainability and social inclusion.
Make your business as lean as possible, but remember that this isn’t just about efficiency but also about productivity and focusing on 'good costs' that do the most to meet changing demands and capitalise on opportunities.
With margins constrained, you can’t afford to keep paying more for top talent. It’s important to develop talent from within your workforce.
By collaborating and integrating third-party platforms, you can offer multiasset solutions and best-in-class-products and services and get the latest tech in a cost-effective way.
So, this year, while you’ll probably need to work harder for returns, you can also differentiate your business by making wise, productive investments and addressing fundamental questions about what you want to achieve and how you can best deliver for your clients and wider stakeholders.