A slowing of asset growth, coupled with rising fee pressure, is likely to push many asset managers to cut costs and alter their strategies to survive, according to a new white paper from U.S. consulting firm Casey Quirk.
The white paper forecasts a tough road ahead for many firms, noting organic asset growth has already slowed to an average annual rate of 1.7% over the past several years from 3.5% before the financial crisis. Furthermore, the paper predicts that organic growth will slow further to less than 1% in the near future.
At the same time, market returns are expected to be lower, which, according to the white paper, “can create dramatic pressure on asset management fees and profits.”
In fact, the report says asset managers “will need to slash fees” to reflect the low-return future. As a result, it predicts that median profit margins for asset managers will drop to 28% from 34% in five years.
Faced with these pressures, asset-management firms will likely have to look to cut costs and adopt new strategies, the white paper says.
“Asset managers face the strongest headwinds yet as an industry,” says Ben Phillips, a principal at Casey Quirk, which focuses on the global asset-management industry for parent firm Deloitte Consulting LLP, in a statement. “Nevertheless, one-third of asset managers are still growing their market share by embracing new, differentiated strategies that reflect changing realities, as well as supporting products and services that appeal to skeptical investors.”
Thus, Casey Quirk recommends that asset managers consider several changes to stay competitive, including shifting resources away from outmoded product lines and client segments to new growth initiatives; streamlining operations and building capabilities; differentiating product lines; digitizing distribution; and building a consumer-oriented fiduciary brand.
“State-of-the-art distribution technology, investment advice that appeals to consumers and better use of data will help successful asset managers secure their market positions,” Phillips adds. “Some future winners will be names the industry might not even consider now, and many of today’s key players will face consolidation if they can’t or won’t change.”
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