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Money Management

PwC: Technology, fee pressures to revamp asset management industry in 10 years

A horizontal image of a large office space shot from above. 10 office workers can be seen below. There are three large tables spread out across the room with multiple workstations.

The global asset management industry will be substantially overhauled over the next 10 years, a new report by PricewaterhouseCoopers predicts.

The report asserts that major changes will be made to fees, investment strategies, distribution, regulation and the way money managers interact with clients on a personal level.

"If you look at the asset management business globally, you have several trends that have accelerated significantly," said John Siciliano, managing director and global strategy leader, asset management at PwC, in a phone interview.

For example, with artificial intelligence, robotics, big data and blockchain transforming the industry, the importance of technology within the asset management industry has increased over the past few years. Money managers must embrace technology as it impacts all of its functions.

"When I was in the business, technology was always seen as a back-office function," Mr. Siciliano said. "But this distinction between front, middle and back office is outdated and irrelevant. You have a seat at the technology table that is mandatory. And that's stepped up in the last few years."

Mr. Siciliano also noted that more clients want multiasset-class solutions. "Style boxes have long since died," he said, adding that clients are looking for outcomes and solutions.

Fee pressure is another area that is changing the industry. There is a continuing global transparency demanded by consumers and regulators around fees.

Investors and regulators are pushing down fees. According to the report, institutional investors will pay more for alpha but not for beta. So as low-cost investment strategies gain market share and larger firms benefit from economies of scale, there will be further industry consolidation and new forms of collaboration.

In addition, the old ways of hiring and nurturing people are changing. New skills are needed, and new employment models must be embraced. Hiring and retaining the best people will depend more on diversity and inclusion, and meeting the needs of the whole person, the report said.

PwC's report states that assets under management globally will continue to grow at a rapid rate. PwC estimates that by 2025, AUM will have risen to $145.4 trillion from $84.9 trillion in 2016, with fewer firms managing more assets while charging lower fees. And some firms will have discovered new opportunities to create alpha and restore profit margins.

Looking ahead, asset managers must have a clear strategy for the future and know how they can differentiate themselves from their competitors. PwC's report asserts that managers should reorganize their business structure to support those capabilities that differentiate them and cut costs elsewhere.

The report is available on PwC's website.