Regulatory and competitive pressures are driving many of the risks facing Canada's asset-management industry as they threaten to curb revenue and ramp up costs, according to a new report from KPMG.
The report, which is based on the results of a recent survey of Canadian asset-management professionals, also focuses on the opportunities for growth for the industry through enhanced distribution, technological innovation and continued consolidation.
View the slideshow for greater details on these threats and opportunities, according to the more than 90 responses from Canadian asset-management professionals in 2016 and 2017.
Lower fees, rising costs concern asset managersSlideshow
The top threats to the asset-management industry today feature a combination of topline pressure on revenue and the prospect of rising costs, which would narrow margins and constrain profits. The forces behind these risks include an underlying shift among investors to lower-fee products, such as passively-managed funds, and regulatory efforts to increase transparency and reduce conflicts of interest that may, in turn, boost compliance costs and sensitize investors to the impact of fees on their returns.
The asset-management industry’s main concern right now — the shift to a lower fee environment — remains the top worry over the next three to five years as well. This suggests that the issue is expected to remain at the forefront of the industry’s attention for the foreseeable future. The second-highest concern in this time frame is intensified competition and consolidation. In the longer term, the industry is also somewhat worried about its ultimate ability to adapt to changing customer preferences.
Little concern regarding ban on embedded commissions
Although Canada’s mutual fund industry vehemently opposes the idea of regulatory reform to eliminate embedded commissions, 70% of asset-management professionals surveyed for the KPMG report said they don’t expect a ban on commissions to impact their ability to attract new clients. Similarly, 64% of those surveyed said that the move to ban embedded commissions wouldn’t impact the asset-management industry’s costs over the long run.
Current opportunities for growth
Canadian asset-management professionals see current opportunities for growth despite the fundamental challenges facing the industry, primarily by making gains with their existing clients, enhancing distribution and stepping up service, merging or acquiring competitors and using data analytics to enhance product design, marketing and pricing.
Opportunities further ahead
For the next three to five years, asset-management leaders see opportunities as increasingly dependent on technology and innovation. Specifically, they expect growth in this time to come from greater use of technology to enhance operations and to help develop and sell new products.
Watch the slideshow on your computer or tablet.