“Fundamental changes to the core proposition will be required”

The growth story of the asset management industry is ending. After years of inflows, for example, due to quantitative easing, asset managers now face an accelerating cost pressure, say Oliver Wyman and Morgan Stanley in a joint study. Although many asset managers are aware of the shift to passive products, the effect on active strategies has been underestimated.

Many asset managers are starting to cut costs, especially in the back office, through the increased use of technologies. However, they “would be mistaken to think that cost reductions alone will be sufficient to address what we believe will be a multi-year process of adjustment," warns Christian Edelmann, partner of Oliver Wyman. Although technologies play a significant role, applications such as big data and artificial intelligence are still underestimated. "Fundamental changes to the core proposition will be required to meet the challenge," says the co-author of the study.

Many asset managers have missed the technological change, and the industry now has to increase their technology budget in the coming years by 20 to 25 billion US dollars, calculates the study. Alternatively, they can work with FinTech companies. However, a study by PricewaterhouseCoopers shows that this is an option for less than a quarter of asset management firms. Most asset managers want to widen their customer base and reduce costs to remain competitive. Although Asset Managers recognise a threat to their business model through automation and digitisation, PwC identifies a failure to prepare for those challenges.

Oliver Wyman and Morgan Stanley expect that the asset management industry will continue to consolidate to create synergies and save costs through mergers. However, this gives the asset managers only a short postponement. A long-term modernisation of sales functions, the merger or the closure of unprofitable funds and the development of technological skills will continue to be on the agenda in the long term.