The question is what asset managers will do
in response to this threat and whether 2018 will
see a point that leads the most exposed
players – bank and insurance-owned asset
managers, here known as proprietary asset
managers – to pursue consolidation or
Either way, the status quo is
Let us take note. The first threat to
asset management’s profitability comes from
passive products. The trend is as predictable as
any in financial services.
In early 1995, passive investment was just three per cent of funds under
management. By 2005, that figure had grown to
15 per cent and is now double that. Current
trends imply a shift to 40-50 per cent by the end
of the decade. That would imply further fee
pressures, pushing industry earnings down a
further 12 per cent over the next three years.
There is likely an upper limit to the passive
juggernaut, but there is no indication when it will be
The second issue is a regulatory shift in
most major jurisdictions from suitability to
fiduciary metrics. Suitability asks whether the
product makes sense for a client whereas a
fiduciary criterion would ascertain whether there
are better alternatives.
Regulatory developments, like the UK’s Retail Distribution Review, are
attempting to reduce conficts of interest whereby
an asset manager rewards their distributor for
pushing their product over those of a competitor.
Even the US Department of Labour, under the
deregulatory impetus of President Trump, does
not appear to have backtracked on its instatement
of a fiduciary responsibility for asset managers.
The third is the push towards transparency
from technology, globalisation and regulation
across many industries. The possibility of an
Amazon-type investment platform could appear.
If it gained prominence, it would increase
pressure on margins.
implementation of Mifd II regulations is also
increasing disclosure on costs, allowing clients to
better understand their cumulative net returns on
investment. Over time, this greater transparency
is also likely to weigh on returns and fees.