Start adding items to your reading lists:or
Save this item to:
This item has been saved to your reading list.
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.
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.
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.
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.
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.
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:
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.
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.
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.