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Four trends for asset managers to watch in 2021

11 February, 2021

Bernadette Geis
Asset and Wealth Management Leader, PwC US

We all expected significant changes for the asset and wealth management sector in 2020, but few could predict the enormous impact of the global pandemic and the reverberating economic distress. Certainly, nobody expected to see a freefall that would land us in bear market territory in just 19 trading days. For many firms, the notion of telecommuting went from an evolving model to a concrete reality overnight. All this while firms were already facing stiffening headwinds from slowing AUM growth, a move to passive investments and declining fees. As we look ahead, here are four trends that we’re watching and some thoughts on how to respond.

1. Scale and cost win the day 

Your firm’s size may influence how it fares in the days ahead. Larger firms likely have the resources to weather continued uncertainty, while smaller brands can use their agility to adapt. We see the most daunting challenges for mid-size firms, trying to navigate between scale and niche managers. Over the next five years, PwC estimates that mega-firms will consolidate further and control some 68% of AUM, up from 53% in 2019,1 meaning 20% of the firms currently operating today will be acquired or eliminated.2

Passive management continues to grow, attracting cost-conscious investors not interested in paying high-fee models. Alongside this move, investors looking for better returns are accelerating their movement to alternative strategies. That growth doesn’t look like it will slow down anytime soon.

2. Tech powers success beyond the workforce

We’ll see some employment contraction, but that’s certainly not the whole story. Yes, we’re predicting fewer jobs in operations, procurement, technology and finance driven by outsourcing, developing technology and other factors. But at the same time, we expect to see employment gains in cybersecurity, compliance and vendor oversight to meet evolving regulatory needs. Job creation in response to environmental, social and governance (ESG) will likely continue to grow.

The pandemic hastened the arrival of permanent remote work, with expectations of nearly 70% of FS employees working from home at least one day a week.3 Keeping up with technology will become critical, beyond day-to-day job execution. Your firm’s approach to digital upskilling, cybersecurity, feedback and cloud access have become a high priority for remote work. 

Regardless of how you approach tech transformation, your firm’s success will likely continue to depend on access to high-quality data. We’ve already seen financial industry leaders make considerable commitments to digitisation in an ever-expanding push to offer investors the most up-to-date analyses, compliance and security. Sourcing and developing reliable data is crucial to supporting decision-making, producing new revenue streams, driving M&A activity and aligning with third-party vendors.

3. Regulation

Compliance will likely continue to remain top of mind for everyone in the AWM sector. With the new administration, asset and wealth managers are focusing on policy changes in three key areas.

  • Tax policy: Tax policy will likely take a different shape under Biden. CFOs and FP&A organizations are discussing potential cash tax rates and effective tax rates and what they will mean. Beyond just the rates, employers are looking at tax impact around employment. With the changing workforce, a bigger set of tax jurisdictions are at play, and those changes can bring certain advantages to fund managers.
  • Interest rates: The low interest rate environment is having a significant impact on the fixed income strategy. Fund managers continue to struggle to provide the right yield opportunities for their investor base while keeping their expected level of risk.
  • SEC: A new administration means new SEC commissioners, and they’re likely to alter the tone of the regulatory environment. We’re already hearing conversations around the indexes, including the amount of capital that’s flowing through passive products that are being governed off of the indexes. There’s also a chance that the SEC could step in to regulate index providers themselves.

Leading firms are staying ahead of the game here by using the time we have now to improve their tax planning. They’re following the Fed movements to stay ahead of the rates and staying close to Washington to make sure they have a voice in any upcoming SEC conversations.

4. Our ESG future

That leads us to acknowledge mushrooming ESG and what we at PwC call the “humane asset manager,” in which AWM firms become agents for social change. With societal shifts tied to the pandemic, we’re all confronting broader issues more directly. With an annual growth rate for socially conscious funds at more than 10%4, we believe this shift presents an opportunity for you to differentiate your firm’s offerings. Leaders can start by redefining their firms’ relationship with employees, boards and society at large by:

  • Focusing on financial wellness and outcomes.
  • Improving diversity, inclusion and the protection of employees.
  • Shifting priorities beyond financial performance.
  • Caring for and helping to protect the environment.
  • Fostering involvement in the communities in which your firm operates.
  • Becoming agents of societal change and elevating the moral purpose of the industry.

Yes, competing with a purpose — rather than on price alone — may complicate how we do business, but it will help clients and society. For some firms, getting this right can help determine their long-term survival.

The way forward

We’ve studied what we think will likely unfold over the next few years for the asset and wealth management industry globally, and we recommend that you consider four areas of focus as you begin to think about your business strategy. 

  • Repair the economic damage wrought by COVID 19. Financial institutions are a mainstay of the global economy. Think about how to address areas that require restructuring and ramp up fee-based revenue activities to bolster reduced capital inflows.
  • Rethink your firm’s organization to move forward in a post-pandemic world. Remote work, which is well-suited to the financial services industry, has driven a new employee/contractor model that streamlines efficiencies and helps reduce cost. Digital upskilling and a nuanced approach to management will allow for a move away from traditional silos.
  • Reconfigure your business and operating platform with an eye toward a digital future. Firms can attribute much of the cost savings from the move to remote work toward adoption of cloud-based solutions and reliance on AI. Allow your firm to be open to strategic alliances with tech-based digital analysis, security and potential partners in M&A.
  • Report your results to highlight your responsibility to regulatory compliance and your unique culture.

1. PwC analysis based on data from ICI and Strategic Insight Simfund.
2. PwC, “Asset and Wealth Management Revolution: Pressure on Profitability,” October 2018.
3. PwC analysis based on data from PwC, “Financial services firms look to a future that balances remote and in-office work,” July 1, 2020.
4. PwC analysis based on data from Simfund data and internal estimates.