Wealth management industry’s total AUM growth is expected to decline from 7% per annum over the past five years to 5% per annum over the period of 2015–2020 on the back of lower asset returns, according to consultancy Oliver Wyman.
The AUM compound annual growth rate (CAGR) for Asia Pacific (APAC) will decline to 6% from 8% over the period of 2011–2020; 4% from 8% for North America; 3% from 5% for Europe; and 7% from 9% for the rest of the world.
Emerging markets (EMs), which account for 31% of global AUM currently, will contribute 58% of net new money by 2020, the report co-authored by Deutsche Bank Research said.
“EMs, therefore, represent the most sizeable [of] growth opportunities, but remain difficult to access for many global players outside the main offshore markets,” the report highlighted.
Going forward, the industry’s earnings capacity will fall short of market expectations. Pre-mitigation, the authors of the report expect an erosion of industry profitability levels by more than one-third; performance skews will further widen.
The drag on profitability will be different across regions: North America and Europe will feel the biggest squeeze as heightened competition and transparency put pressure on fees. APAC will see less top – line pressure but costs for global players in the region are likely to increase due to required risk and compliance upgrades and heightened cost of doing business.
The report, titled Running Faster to Stand Still, states that fees may come under pressure due to higher transparency standards, emerging competitors and the shift to passive products.
To sustain profitability, the industry will need to redesign the ‘core’ high-net worth service model and digitize parts of the value chain, the report said.
The report suggest that the industry should explore new sources of value creation such as platforms that enable investors to access opportunities such as growth stage financing or direct real estate investments.
Also, leaders will need to sharpen their focus on client acquisitions and managing attrition risks, in particular with respect to inter-generational wealth transfers, the authors of the report opined.
Wealth managers should expand their existing philanthropy offering into full charity operations support, following the trend of professionalisation in charitable giving, the report suggested.
Christian Edelmann, global head of Oliver Wyman’s wealth and asset management practice, commented: “The forces that drove performance in wealth management in recent years are changing, and firms will need to take action on costs and develop new ways of engaging with clients to maintain revenues.”