Asset management industry to shrink by half in next 15 years, says KPMG
Nearly half of all asset managers will not exist by 2030 as client demographics, technology and social behaviour undergo rapid transformation, according to a report by KPMG.
The report – Investing in the Future – warned the asset management industry it needed to evolve to confront these challenges.
“We are on the verge of the biggest shake-up the industry has experienced and the message to asset managers is clear – adapt to change or your business will not survive. Demographics are changing. People are living longer and taking greater responsibility for their own retirement planning. Younger generations will also save more as they see their parents run out of money in retirement. We also expect to see a significant boost of new money from the growing middle classes in China, Mexico, India, Nigeria and other developing economies over the next 15 years,” said Tom Brown, global head of investment management at KPMG.
It advised asset managers that they build “cradle to grave” relationships with a more diverse set of clients instead of focusing their efforts on those investors with readily available cash. It highlighted managers needed to start approaching younger prospective clients and be increasingly aware that women now control a larger share of family wealth.
Asset managers are also behind the curve with technology. While many firms are overhauling their legacy systems to deal with increasing regulatory requirements such as the European Market Infrastructure Reform (EMIR), the Alternative Investment Fund Managers Directive (AIFMD) and Solvency II, not enough work is being done to address challenges that might arise in the future.
“While huge investment is being made in IT, this is primarily to address the legacy issues of yesterday and the problems of today rather than the needs of the business tomorrow. Investment managers will need to invest for the future. They will need to design and create new platforms with the flexibility, scalability and functionality to support a much more diverse client base and deliver a step change in costs, control and the client experience,” reads the report.
The report also pointed out non-traditional players could emerge and enter the asset management industry through a wave of mergers and acquisitions. “New entrants who are not plagued by legacy issues and out-dated clunky systems, will thrive as they can move quickly to implement more relevant digital and data strategies,” said Ian Smith, financial services strategy partner at KPMG.
The study said brands, such as Google, Amazon or Apple, which resonate strongly with young people, could find themselves becoming powerhouses in the investment management world. The report predicted younger people will purchase investment products on-line rather than through a face-to-face adviser.
The growing relevance of online communities and social networks is changing attitudes and behaviours too. "Consumers are increasingly looking to ‘people like me’ rather than professionals for advice, guidance and direction,” said Smith.