Changing client preferences, growth of digital investing platforms also at top of list
Money management executives view fee pressure, changing client preferences and the growth of digital investing platforms and advice as their top emerging risks to their businesses, a Deloitte report said.
The firm's 11th annual Global Risk Management Survey questioned chief risk officers from 94 financial services firms. Forty-nine percent of respondents provide money management services, representing $23 trillion in assets under management.
Of these money management representatives, 51% cited fee pressure as one of their top three risks, and 22% ranked it as the top worry.
Deloitte's report cited competitive pressures, changing investor preferences and aging organizational infrastructure as likely to lead "to a continued compression of margins at many investment management organizations." It noted the shift toward passive management and "fee wars between active and passive funds" reaching a new high in 2018 as zero-management-fee index strategies were introduced as particular issues.
Also cited as a top three concern by 51% of executives was the risk associated with changing client preferences, with demand from investors for passive and alternative strategies. The growth of digital platforms and advice, such as robo-advice, was a top-three concern for 43% of respondents.
"Both issues contribute to fee compression, which impacts an investment manager's strategic positioning and competitiveness," the report said.
Other emerging risks for money managers included regulatory change, reputation risk and distribution relationships.
Money managers were also asked to name the top three risk types that will pose the greatest challenges to their firms over the next two years. Of these respondents, 43% said operational risk was among their top concerns, with the issue rated as being extremely or very challenging related to the rising threat of cybersecurity risk and its impact on confidentiality, availability, and integrity of data and information.