Asset Management Set for Radical Transformation: KPMG

Industry consolidation may reduce players by half in 15 years

By 2030, the global asset management industry will radically transform because of seismic shifts in client demographics, technology and changing social values and behaviors, according to a new report from KPMG International.

The report says a typical asset manager’s client base will be completely different from today’s, as Gen X approaches retirement, Gen Y matures and the middle class in China, Mexico, India, Nigeria and other developing economies expands.

Clients will be much more diverse in terms of who they are, where they are located and what they need, want and expect from asset managers.

Current business models are not fit to address these changes, the report says.

“We are on the verge of the biggest shake-up the industry has experienced, and the message to asset managers is clear—adapt to change or your business won’t survive,” Tom Brown, global head of investment management at KPMG International, said in a statement.

“The two biggest issues that need to be addressed are the changing client base and technology, and asset managers need to get to work on these areas now.”

Brown said tomorrow’s successful asset managers must focus on building cradle-to-grave relationships with a dramatically different and more diverse client base in mind, including much younger investors.

“They must also be mindful that women are increasingly controlling a bigger share of family wealth,” he said.

Technology for Tomorrow

The report stresses the importance of technological investments, and suggests that firms are currently focusing on the wrong areas.

In 15 years, clients will have fundamentally different needs and expectations, according to the report.

They will demand more personalized information, education and advice that will require asset managers to address their technology capabilities to understand their clients and provide this level of service.

“Asset managers still have a long way to go to recognize and exploit big data and data analytics,” Ian Smith, a KPMG financial services strategy partner in the U.K., said in the statement.

Smith said IT was attracting significant investment, but this was not being channeled in the right areas. Many firms were trying to unpick the complex legacy of disparate systems and technologies while trying to ensure they provided the right level of control to meet increasingly stringent compliance requirements.

“There is too little focus on building the architecture to meet the business needs of tomorrow,” Smith said.

The report said several things were necessary to respond to the challenge:

  • A robust platform that can be customized to address diverse client needs and differing expectations of service and to deliver a personalized offering
  • Harnessing and leveraging a wider pool of data to drive investor insights, enhance the investment process and direct internal effort and investment
  • An organizational structure that can manage challenges of further geographic expansion, withstand increasing client and regulatory scrutiny of risk management and provide better connectivity with other organizations
  • HR practices and policies that reflect the evolving nature of the global talent pool, employees’ changing expectations and potential shifts in core competencies for which asset managers are searching

Industry Consolidation

According to Smith, big opportunities exist for nontraditional players in the investment management business, and these combined with continued pressure on margins and the search for capabilities could “kick-start a wave of M&A activity.”

New entrants, not weighted down by legacy issues and outdated systems, can thrive as they rapidly implement more relevant digital and data strategies. Trusted brands that appeal to both a more diverse client base and the younger generation, may be able to build scale quickly.

“We could see technology companies or large retailers of the world becoming the next big powerhouses in investment management,” Smith said.

“As such, we expect to see mass consolidation in the industry and predict that within 15 years there will be half the number of players currently in the market.”

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