The worsening investment environment and declining fee structures will adversely impact the wealth-management industry worldwide whereby the industry’s total AUM growth is expected to decline from 7% per annum over the period of 2011–2015, to 5% per annum over the period of 2015–2020, according to consultancy Oliver Wyman.
In a report on global wealth management published on July 20, Oliver Wyman states that the AUM compound annual growth rate (CAGR) for Asia Pacific (APAC) will decrease from 8% to 6% over the period of 2011–2020; 8% to 4% for North America; 5% to 3% for Europe; and 9% to 7% for the rest of the world.
Emerging markets (EMs) – which account for 31% of global AUM today – are expected to contribute 58% of net new money by 2020. “EMs, therefore, represent the most sizeable [of] growth opportunities, but remain difficult to access for many global players outside the main offshore markets”, states the report.
The report also attributes the reduced overall AUM growth primarily to the weaker asset performance contribution at approximately 2% through 2020, against 4% over 2011–2015.
It highlights that equities look richly priced on an event neutral basis and that it will be difficult to see significant further multiple expansion while earnings growth is challenged. As for fixed income, rising rates and widening credit spreads in the US could bring the decade-long bull market to a halt.
Also, even if clients doubled their allocations to alternatives by 2020, the overall AUM would only increase by up to 0.3% per year, the report adds.
Contrary to the report’s predictions, some wealth managers still assume an AUM growth of between 8% and 10% per annum in their business plans.
This translates into an AUM gap of US$15 trillion emerging by 2020. The growth gap may also mean more aggressive client-acquisition strategies coming into play, potentially risking an onboarding of a new wave of compliance risks.
The report also points out that the industry would see downward pressure on fees globally. In the APAC region, the pressure is predominately caused by the heightened price sensitivity of Asian investors and increasing competition, particularly in transaction and advisory services.
To sustain profitability, Oliver Wyman suggests that the industry would need to redesign the “core” high-net-worth service model and digitise parts of the value chain, in addition to exploring new sources of value creation such as platforms that enable investors to access opportunities like growth-stage financing or direct real-estate investments.
“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,” says Christian Edelmann, global head of Oliver Wyman’s wealth and asset management practice.
