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How Asset and Wealth Management Firms Can Survive in a New Era

The industry is grappling with an unprecedented set of existential challenges.

By 2027, 16% of existing asset and wealth management organizations are expected to be swallowed up or have fallen by the wayside—twice the historical rate of turnover. This challenging data point underscores key takeaways from our latest industry projections and a survey of 250 asset managers and 250 institutional investors: the AWM industry is grappling with a set of existential challenges exceeding those of any previous era.

Areas that have long been critical—digital transformation, shifting investor expectations and consolidation—are gaining new ground and posing fresh questions against a backdrop of social, economic and geopolitical disruption. Faced with these challenges, leaders should focus on how they can successfully adapt to thrive in the changing industry landscape, with these five key imperatives for survival and success:

Steering Through Once-In-A-Career Upheaval

Inflation, market volatility and interest rate movements are by far the biggest concerns for both investors and asset managers in the near future. Outperforming the market, and even outperforming low-risk deposits and money market funds, will be challenging in this exacting, post-COVID-19 environment.

While navigating through the immediate storm, firms need to focus on the decisions and investments required to transform their businesses and deliver long-term viability and growth. Even the largest players won’t have the scale and expertise to compete in all of today’s emerging markets, so it’s important to focus on what you’re good at. Offerings outside your core can be bought in from partners with capabilities to execute this well. By learning more about your investors and developing the data and analytics to understand their needs, you can still deliver value and insight even when using third-party distributors.

Getting Closer to the Customer

The opening up of private markets and shifts in investment allocation—including greater demand for exchange-traded funds—are transforming the competitive landscape and the frontiers for growth, amid a $68 trillion transfer of wealth from baby boomers to millennials by 2030.

High-net-worth individuals want more from wealth managers and will switch firms if they don’t get it. To adjust to this generational shift in funds, firms should develop enhanced customer profiling and the experience needed to bring custom, high-quality wealth management services to a larger customer base. This can be achieved through expanding your product offering, improving mobile capabilities and virtual collaboration tools to offer seamless multichannel engagement, or collaborating with a partner who has the necessary name recognition and distribution capabilities.

Embracing Experimentation and Change

Technology is upending the way investments are traded, securities are held and contracts are settled. Despite widespread investment and deployment of these technologies, this is the area of investor expectation that asset managers continue to find most challenging.

To keep pace with today’s rapidly evolving systems, firms should consider outsourcing non-client-facing, mid-office, and back-office requirements to a managed service provider with the scale and resources to ensure that both tech platforms and the skills of the talent needed to run them are fully up to date. Additionally, consider broadening your retail presence through AI and robo-advice as a way to offer personalized solutions that would once have been reserved for HNW clients. However, you can’t move forward on AI without managing risks among investors, employees and regulators, which underlines the need for maintaining robust governance and data protection.

Delivering at Scale Amid Cost and Competitive Pressures

A combination of competition and investor pressure continues to drive down fees, with the biggest downward push now coming from within the AWM industry as large managers are able to combine scale and investment in the latest technologies to undercut competitors. As industry consolidation and increased concentration picks up speed, we expect the top ten asset managers to control around half of all mutual fund assets globally by 2027.

Nearly three-quarters of asset managers are considering a strategic consolidation with another asset manager in the coming months, though some transactions may be held up by valuation uncertainty and funding constraints in the short term. With interest rates high and access to capital limited, large-scale deals may be confined to buyers with significant cash reserves. However, innovative alliances and smaller, tech-focused and talent-focused deals are still possible and could provide transformational results.

Standing Up to Intensifying Scrutiny

The growing spotlight on AWM and its role in society raises fundamental questions about firms’ purpose and relevance as an organization. Sixty percent of asset managers believe environmental, social and governance expertise will be essential for their portfolio management team in today’s market, and some investors are implementing diversity and inclusion scoring to their decisions about which asset managers they select.

The already bright regulatory spotlight on investor outcomes is set to intensify in the wake of recent fund value fluctuations. This highlights the need to respond quickly to those expectations and start incorporating it into your investment and product development strategies now to enable you to get ahead and differentiate your funds. Rather than viewing incoming regulations as a compliance exercise, consider that they could provide a catalyst for improving and differentiating outcomes.

Looking Ahead

The AWM industry has shown remarkable resilience in adapting to changing market conditions and evolving investor demands over the years. Indeed, as near-term pressures mount, we’re already seeing the emergence of a new breed of AWM organization: tech-enabled, customer-focused, and prepared to operate across a wide range of asset types, both within and outside traditional AWM. By 2027, we expect the industry will be transformed and—as a result—it will be imperative for leadership to adapt accordingly.

Seth Promisel is PwC’s Asset and Wealth Management Trust Solutions Leader.

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