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Asset management becomes “winner-takes-all’ game

Asset managers are increasingly adopting a "service industry mindset" due to the reducing growth outlook, the FundForum conference heard.

Ben Philips, chairman of investment management consultancy Casey Quirk, described the change as “seismic”.

Between 2000 and 2010, new money coming into the industry reached roughly 6% per year on average, but Casey Quirk predicts this figure will fall below 2% by 2020.

“Most of this has to do with institutional investors starting to shrink. There’s a big shift in the asset management industry, from institutions to individuals,” Philips said. “

“Nearly half the industry had negative flows in 2015. Increasingly, this is a winner-takes-all industry, where most new growth will come from clawing market share from your competitors."

Philips said asset managers faced increasing pressure from new and alternative wealth creation vehicles. Of all wealth created globally between 2012 and 2014, asset managers were responsible for a quarter of it.

“Wealth managers are directly allocating across ETFs [exchange-traded funds] and individual securities; insurers are  looking at product sets; other financial services firms are starting to measure the unmet need for advice globally among individuals," he said. "Managers and their fees have been under significant pressure.”

The obvious question is how asset managers can prevail in this milieu. Philips suggested the way forward was via differentiation. "The product offer has to be unique, the advice being offered has to stand apart, the customer engagement and service has to be highly differentiated," he said. "Firms that are able to get the changing operation environment right, and realise the way they’ve done business is no longer going to be sufficient to win going forward, are going to be the winners here."

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