Casey Quirk: Fee Pressure and Low-Return Environment to Foster Industry Innovation

Dec 8 2016 | 12:25am ET

Persistent and unprecedented pressures on fees and slow growth will force asset managers worldwide to cut costs and explore new business strategies if they are to survive, according to a new white paper from Deloitte’s global asset management consulting unit Casey Quirk. 

The paper, entitled “Survival of the Fittest: Defining Future Leaders in Asset Management,” Casey Quirk details how asset managers should react to the current characteristics of the industry, which include an era of lower capital market returns, shrinking growth in assets to manage, and widespread portfolio de-risking. Increasing regulation of investment advice providers and disruptive technologies that circumvent traditional asset managers also pose long-term challenges, the paper contends.

Organic growth, i.e. new assets for managers to win, has slowed from an average rate of 3.5 percent annually worldwide pre-crisis to 1.7 percent from 2009-2014, and it will likely will fall below 1 percent in the near future. China’s asset management marketplace is an exception, and will likely grow as fast as the rest of the world combined, according to the company’s analysis.

Additionally, an era of near-zero interest rates and lower capital market returns are creating dramatic pressure on fees and manager profits. Asset managers and advisors will need to slash fees to maintain the same long-term ratio of fees to returns, which historically has hovered around 25 percent. Casey Quirk predicts median profit margins for asset managers will drop from 34 percent to 28 percent in five years.

“Asset managers face the strongest headwinds yet as an industry,” said Ben Phillips, a principal at Casey Quirk. “Nevertheless, one-third of asset managers are still growing their market share by embracing new, differentiated strategies that reflect changing realities, as well as supporting products and services that appeal to skeptical investors.”

Accordingly, leading managers are developing four key characteristics in order to compete: 

  • A broader investment toolkit that has transitioned from legacy benchmark-oriented products to in-demand actively managed capabilities
  • A strong brand with well-regarded fiduciary and consumer attributes built on trust, investment leadership, and an ability to regularly meet investor expectations about outcomes
  • A customer experience that positions the firm’s value-added services for the investor
  • Data about customers and markets that fuel proprietary analytics

“State-of-the-art distribution technology, investment advice that appeals to consumers, and better use of data will help successful asset managers secure their market positions,” Phillips added. 

Established in 2002 and acquired as a practice of Deloitte Consulting in June 2016, Casey Quirk advises investment management businesses globally including asset managers, hedge funds, private equity and real estate investment firms. It is the largest management consulting practice dedicated to advising investment managers on business strategy, and has engagement experience in every major firm type, asset class, and market segment in the world.

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