Technological change alone can be daunting as evidenced by the arrival of “5G” and most recently “The Metaverse”. In other words, we have ‘never been here before’ as we enter a new stage of technology growth. Although it is a potentially positive dynamic for investors, it is also economically deflating.

RIA’s will need to update their infrastructure in order to sustain favorable profit margins. In general, asset and wealth management (AWM) has been in a period of upheaval globally since the 2008- 2009 Global Financial Crisis (GFC) that’s intensifying.   The modern-day industry has remained fundamentally the same since the last decade of the 20th Century; over the next ten years running through the 2020’s, it will be substantially reinvented.  There will be major changes to fees, products, distribution, regulation, technology and people skills.

Assets under management (AUM) are expected to continue growing rapidly. PwC estimated that by 2025 AUM will have almost doubled – rising from $84.9 trillion in 2016 to $145.4 trillion in 2025. This growth will likely be uneven in consistency and timing: slowest in percentage terms in developed markets and fastest in developing markets. 

But there are bumps along the way. 

Rising populism in Europe, Brexit negotiations, China’s transition to a consumer-driven economy, Asian geopolitics and the potential changes in US policies on regulation, tax and trade all create uncertainty. 

Four interconnected trends will drive the AWM industry’s revolution as per PwC. Between them, they will squeeze industry margins, making scale and operational efficiency far more important, and meaning that all firms need to integrate technology in all areas of the business and develop a clear strategy for the future. 

Buyers’ Market

Fees are being pushed down by investors and regulators. Increased regulation, competition and new entrants are disrupting traditional value chains and revolutionizing wealth managers’ raison d’être. Regulations are being introduced worldwide to prevent asset managers from paying commissions to incentivize distributors, leading to lower cost retail products. Meanwhile, institutional investors have the tools to differentiate alpha and beta – they will pay more for alpha but not for beta. As low-cost products gain market share, and larger players benefit from scale economies, there will be further industry consolidation and new forms of collaboration. Asset and wealth managers must be ‘fit for growth’ or they can expect either to fail or to become acquisition targets. They must act now. 

Digitization

Do or die. The AWM industry is a digital technology laggard. Technology advances will drive quantum change across the value chain – including new client acquisition, customization of investment advice, research and portfolio management, middle and back office processes, distribution and client engagement. How well firms embrace technology will help to determine which prosper in the years ahead. Technology giants will enter the sector, flexing their data analytics and distribution muscle. The race is on.

Funding the Future

Asset and wealth managers have been filling the financing gaps that have emerged since the GFC. They have been first movers, providing capital in areas short of funding due to banks’ regulatory and capital limitations, as well as investing in real asset classes. To generate alpha, their involvement in niche areas such as trade finance, peer-to-peer lending and infrastructure will dramatically increase. Equipping individuals to save for old age, as governments step back, will also support growth in AUM. Action is needed to capitalize on the gaps.

 Outcomes Matter

Investors have spoken loudly. They want solutions for specific needs – not products that fit style boxes. Active, passive and alternative strategies have become building blocks for multi asset, outcome driven solutions (which will increasingly include environmental, social and governance outcomes). Demand for passive and alternative strategies will grow quickly. While active management will continue to play an important role, its growth over the near term will be slower than passive. Firms must either have the scale to create multi-asset solutions or be content as suppliers of building blocks. Managers must deeply understand their investors needs, tailor solutions and focus on optimizing distribution channels. They must also focus on their core differentiating capabilities and move to outsource non-core functions, such as tax compliance. Investors have great choice; they will move to optimal solutions regardless of prior loyalties. 


These four trends will transform the industry’s nature and structure. Scale, price, diversity, and technological capabilities will characterize the largest firms. Smaller, specialist firms will prosper if they offer excellent investment performance and service.