Tom Brown stated, “We are living in an uncertain and rapidly changing world. The unstable political and social environment in many parts of the world make investors nervous and markets volatile. A fragile outlook for the global economy, ultra-low interest rates, political uncertainty and questions about China's future growth all lead to uncertainty.” Asset managers are finding it more difficult than ever to chart and navigate a reliable path of intelligent strategies and sustainable growth. Two trends that may have the greatest influence in separating the winners from the losers in the asset management industry are 1) technology and 2) regulation.
It starts with customers and how asset managers are interacting with them. Then there is the efficiency dimension and how technology can drive down costs under relentless margin pressures. And finally in the money management dimension, technology is having an impact on the core activity of investing and generating alpha.
From the customer perspective on technology, there is the impact of robo advisers. The human touch has gone digital and robo advisers are reaching and delivering to a growing population of savers. It is user friendly, accessible 24/7 and lower cost than face to face advice. In the US, the trend has taken off and the rest of the world is poised to follow. It is a balancing act of maintaining personal relationships versus delivering a 21st century service and attracting the next generation of investors.
In the efficiency dimension, the disruptive and still-maturing technology of blockchain is generating considerable interest – from firms and regulators alike. There is much debate about its potential to fundamentally change dealing, settlement, custody and transfer agency operations and take out significant costs.
And looking at the money management dimension, the application of data analytics, artificial intelligence and machine learning is disrupting conventional approaches to portfolio management.
The political backlash after the financial crisis has started to wane and the regulatory pendulum is starting to swing the other way. At a macro level, regulators are still trying to work out what to do about systemic risks in our industry. At a micro level they are championing the consumer. In the KPMG annual report on global regulation, many of the regulatory initiatives are pulling and pushing in different directions creating a regulatory minefield.
The debate has widened to a value-for-money question, with regulators and commentators asking whether investors are getting a fair deal. Products need to clearly demonstrate they are tailored to consumer needs, earn their fees and are packaged appropriately. So far the industry has been slow to adapt, that is changing, but it needs to happen faster.
There are positive new regulations that are enabling the industry to do more, for example initiatives that encourage people to save and invest for the long term, and strategies to improve the flow of capital. Asian fund passports, the framework for European long-term investment funds (LTIFs) and pensions freedoms are all good examples.
KPMG’s Evolving Investment Management Regulation report finds the industry under closer regulatory scrutiny.