Although making predictions about the future is never a simple task, it can become complicated even further during periods when disruption and transformative change are the norm. This has been the case for the asset and wealth management (AWM) industry for the past decade; after the upheaval of the 2008 global financial crisis, regulatory pressures, new technology, and calls for greater transparency have led to revolutionary changes in the field.
Despite the difficulties in making these predictions, PwC recently released a report—“Asset & Wealth Management Revolution: Embracing Exponential Change”—in which they discuss how the AWM industry will evolve over the course of the next 10 years and beyond. They argue that four transformational trends will reshape the industry to make it more technology driven, results-oriented, and client-centric. Notably, many of PwC’s predictions are similar to those of the CFA Institute’s “Future of Finance” report, which I have previously discussed in great detail.
Encouragingly, PwC predicts that the total assets under management (AUM) will nearly double from $84.9 trillion in 2016 to $145.5 trillion by 2025. The engine of much of this growth will come from developing markets, such as Asia and Latin America, while developed markets will grow at a slower pace.
At the same time that AUM grows, firms and asset managers will need to contend with greater demands for transparency. Even today, investors are insisting upon full disclosure of fees that they pay and some investors, particularly millennials, are forgoing the apparent opacity of asset management altogether in favor of fully transparent ETFs. There are also increasing regulatory pressures on firms requiring them to make certain disclosures to investors. PwC anticipates that these trends will only continue, driving down costs and increasing transparency, which will bring about the first of their four revolutionary changes: the development of a buyer’s market in AWM.
Additionally, technology will play an important role in the future of the AWM industry and actually represents PwC’s second revolutionary change. Firms will automate functions and services as a method of driving down costs and increasing transparency; meanwhile, new technologies, such as artificial intelligence, big data, and blockchain, will improve and streamline due diligence, analysis, and enable customized investment strategies. The latter point plays into another of the revolutionary changes that PwC forecasts, “outcomes matter,” in which investors will prioritize a set of specific desired results over a particular style box of investment.
The final revolutionary change is “funding the future” in which asset managers will pursue new opportunities to fund real assets like infrastructure and real estate and generate alpha. They will also be able to design new products to meet the needs of new clients.
The full PwC report is available here.