Pay in the asset management industry will fail to keep pace with revenue growth as compensation structures change to reflect performance and reduce conflicts of interest, consultants say.
PwC, a business services firm, says industry pay will fall as a percentage of revenue from the current high of 45% to 35% by 2020, while assets under management will reach €100 trillion.
This would render asset management the largest single component of the financial services sector, and industry pay rates will be subjected to the same scrutiny as remuneration in the banking sector as a result.
Stress-testing, due diligence regulations and ever-increasing transparency requirements will all depress asset management income, the firm says in a report, ‘Rethinking reward as asset management moves centre stage’.
PwC calculates staff pay is the largest overhead for the funds industry – 60% of the total costs incurred by asset managers annually – meaning pay structures will have to rapidly adapt.
Productivity will emerge as one of the most important metrics in asset management, PwC says, with pay commensurate with return on investment.
Moreover, the firm expects a shift away from the current ‘star’ manager culture, towards team decisions and outcomes that will be reflected in compensation structures.
As the focus sharpens on risk, by 2020 a head of compliance’s remuneration will be separated from company performance, as sharing in profit-driven bonus pools will be seen as a conflict of interest.
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