Asset and Fund Management Firms Undergoing Major Transformation, Requiring Changes to Their Business Models: PwC

Sep 22, 2010 | Corporate Member News

A report by PricewaterhouseCoopers (PwC) reveals a number of factors that point to a major transformation in the asset management industry over the next few years. 

“We are going to be seeing big changes ahead, a metamorphosis really, that will require fund managers and institutions to completely rethink their current business models,” says Raj Kothari, PwC’s partner and national asset management practice leader.

The study states that lower asset values, growing competition and rising operational costs are causing asset management firms to experience lower profit margins. At the same time, investors are looking for increased transparency and more frequent reporting while regulators are placing more pressure on managers to provide this transparency.

“All of these drivers point to changes in how products will be sold and how advisors will be compensated,” says Kothari. “This is a time when all organizations should be thinking about these impacts and developing new strategies for their operations.”

Kothari outlines some of the changes that asset management companies will need to address to succeed and remain competitive:

Outsourcing. To reduce costs, outsourcing is becoming more common in Canada by transferring non-core activities to third-party providers.

Shared Services. Support processes such as human resources and information technology can be shared among a greater base to create savings while potentially improving quality through greater standardization.

Investing in Technology. Although this involves up-front, short-term costs, which may be difficult for some companies, investing in technology can lead to longer-term cost savings and improve productivity.

Mergers and Acquisitions.  In particular, consolidation between medium-sized players is a likely scenario to achieve scale, specialization and cost reduction.

More Contact with Customers.  During lean economic times, studies have shown that increased client contact by relationship managers is considered the top tactic to retain clients.

Regulatory Requirements. Global regulators are increasing demands for greater clarity and transparency, especially since the credit crisis. Companies and industry associations should strive to provide simple and clear disclosure that effectively addresses customer needs.

Retention of Top Management. To remain competitive, retaining top managers is essential and companies should be looking at their structure and approach to people strategies such as competency assessments, training and career mapping.

Intergenerational wealth transfers and changing product needs. As baby boomers near retirement and life expectancies increase, the importance of savings and retirement will be even more significant. Asset managers will need to target the aging population by developing compelling investment strategies addressing the varied needs of their investors.

“The impending wave of baby boomer retirements and ongoing intergenerational wealth transfer will have a significant impact on the asset management industry,” Kothari says. 

In order to capture a share of the large Canadian retirement market and intergenerational transfers, asset managers will need to address the changing needs of their clients and fill gaps in their own service offerings.

The report notes that asset managers will need to develop strategies to better serve beneficiaries in different generational cohorts, especially among those who have been underserved and may possess fundamentally different investment preferences, risk tolerances, investment horizons and behaviours regarding wealth.

Kothari also believes that Canadian independent asset management companies will face increasing pressure to compete from banks and global players.  While there are challenges in going up against well-financed banking organizations, the problem is more to do with economies of scale. Currently, he says, 79% of net assets in Canadian mutual funds are under the umbrella of the 10 largest fund companies in Canada – of which five are bank-owned institutions

Another emerging issue in the industry is government’s need to find new sources of tax revenue. As governments look for ways to deal with increasing deficits, Canadians with assets in offshore jurisdictions will be under greater scrutiny,

The full report is available on the PwC website at www.pwc.com/ca/am

About PricewaterhouseCoopers LLP

PricewaterhouseCoopers (http://www.pwc.com/) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,300 partners and staff in offices across the country.

“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity. 

For further information:

David Rowney, 416 365 8858, [email protected]
Kiran Chauhan, 416 947 8983, [email protected]
www.pwc.com/ca/news 

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