Top 10 Drivers Impacting Global Wealth And Asset Management by EY
Disruption. Change. Paradigm Shift. Threats – Or Opportunities.
Faced with these challenges, the global wealth and asset management industry is entering a perfect storm of client, technological, regulatory, fiscal and market evolution. Disruption is everywhere. The opportunity to take the complex landscape of FinTech disruption and regulatory reform, make sweeping strategic changes to technology and solutions, and win the confidence and trust of the market will create new industry winners. And leave many on the sidelines.Disruption that firms are facing gives rise to several key strategic drivers impacting the industry.
EY Global Wealth & Asset Management puts forward what we see as 10 disruptive drivers in global wealth and asset management now challenging the industry:
- FinTech and innovation: The future of advice is threatened by innovation and FinTech. Firms must quickly react to regulators and investors demanding more transparency, better risk management, enhanced client service and greater clarity in the connection between fees paid, services delivered and value offered.
- Cybersecurity: The spotlight on cyberthreats is as strong as ever.
- Liquidity risk: Misalignment of liquidity was a key driver of the financial crisis. Any hiccup in asset allocation in the current low-rate environment leaves investors exceptionally vulnerable to further liquidity shocks.
- Conduct risk: Conduct of firms — delivering real value for fees received — is now a key enforcement theme of global regulators.
- Long-term conviction vs. short-term action: Corporate strategy must balance the need to meet near-term earnings targets against the necessity to ensure long-term sustainability.
- Investments with purpose: Seeking growth in a highly competitive industry, firms must step up offerings of “investments with purpose” in response to changing market dynamics, such as the rise of millennials and growing affluence of women, who often demand investment opportunities that align with their values and benefit society.
- Focus on client experience: Firms need to move away from their focus on product push and toward building their business model based on customer experience.
- Simplifying the proposition: Simple, clear and transparent is the new mantra.
- Technology and strategic efficiency: Technology will continue to not only deliver further productivity gains, but also leverage big data to use client analytics and grow distribution.
- Complexity of global tax reporting: Tax reporting is no longer a periodic procedure ending at a specific point in time, but has now become a more complex, year-round process.
Faced with these challenges, the global wealth and asset management industry is entering a perfect storm of client, technological, regulatory, fiscal and market evolution. Disruption is everywhere. The opportunity to take the complex landscape of FinTech disruption and regulatory reform, make sweeping strategic changes to technology and solutions, and win the confidence and trust of the market will create new industry winners. And leave many on the sidelines.
Disruption that firms are facing gives rise to several key strategic drivers impacting the industry:
[drizzle]Seizing disruption as a game-changing opportunity, rather than viewing it as a threat, to gain first-mover advantage, drive productivity gains and enhance the client experience to better compete and win in the market.
Leveraging technology to drive innovation in a highly prudent, cost-effective manner with a focus on budgeting and project management so that each new strategic priority has a clear and measurable goal: better cost management, more streamlined processes, enhanced client service.
Preparing well in advance, as regulators and investors now demand, to mitigate risks of the next liquidity crisis.
Re-evaluating focus and alignment on conduct risk from the C-suite through the entire organization. Global regulators and investors have set the conduct bar high. Tone from the top is critical, but execution is critical to success. Getting in front of the market by establishing and executing world-class standards of conduct will win firms the prize of gaining trust and growing business.
Embracing the difficult trade-off between sacrificing short-term profitability to achieve long-term growth and sustainability.
Ensuring that tax compliance is supported by an integrated global infrastructure and an understanding of the unique needs of each jurisdiction. Firms must effectively align reporting, and leverage technology and service providers, in the most cost-efficient means possible – backed up by the appropriate tools for local activity and governed with centralized oversight.
2016: Embracing disruption, innovation and change
The global wealth and asset management industry continues to experience strong growth, primarily due to steadily recovering developed markets. Yet, firms also face an onslaught of changes: an often conflicting regulatory environment, a changing remuneration model in distribution and evolving investor demographics. Firms who have focused on lucrative asset classes that offered comfortable margins, such as emerging markets (EMS) and high yield, are now challenged as many investors become more risk-averse.
Perhaps the greatest opportunity. or threat, is FinTech. The ongoing paradigm shift driven by FinTech disruption should not be underestimated. The successful new telecom firms that emerged winners after the dot-com bubble usually had only a limited historical background in telecommunications and were initially rooted in such unrelated sectors as computer hardware and shipping. They were willing to sacrifice some short-term profits to achieve long-term growth and sustainability. They focused on continually enhancing client experience rather than merely pushing products. The winners knew how to seize opportunity and innovate. By comparison, many of the global entrenched network carriers who dominated the industry for decades before the dawn of the wireless and internet era were slow to react to change; as a result, they were overtaken by those more innovative and disappeared or were forced to restructure.
Today, many wealth and asset management firms are striving to gain first-mover advantage in FinTech and lead the race for market share by offering aggressive pricing, compelling messaging and “sticky” digital client interfaces. Similar to the telecommunications boom of prior decades, FinTech presents the danger, or opportunity. to rewrite the list of industry winners across the globe.
In tandem with FinTech, firms are seeing opportunities in complex regulatory change. Innovators are busy implementing world-class standards of transparency, governance and conduct-risk mitigation well in advance of any regulatory implementation deadline. Their prize will be the leadership role of “most-trusted service provider” in an industry challenged by declining client trust.
Winning client trust will deliver success through growth. For example, the vast majority of the workforce in the developed world still does not own any fund products. While in the UK and the US, most workers do have exposure to funds at least indirectly through retirement accounts, the proportion of potential clients connected to the asset management industry is far lower in the rest of the world. According to a study by the European Central Bank, the participation rate in the asset management industry is around only 6% in Italy and Spain. In Greece and Cyprus, it is only 1%. In the emerging and frontier markets of Latin America, Asia-Pacific and Eastern Europe, participation similarly hovers around the single digits.
This lack of industry penetration in much of the world is due in large part to widespread skepticism about wealth and asset managers, as well as uncertainty about what value they can deliver. Further, vast segments of the working population, such as the mass affluent, were previously considered by much of the industry as uneconomic to service. However, with the rise of the new breed of “robo-advisors,” a great proportion of these potential clients will soon become economically viable as a vast new market segment.
EY’s Global Wealth