The number of firms in the global asset management industry will be cut in half over the next 15 years due to a shift in client demographics, new technology and changing social behaviors, according to a report from KPMG International.
“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. 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,” said Tom Brown, global head of investment management at KPMG International.
The report, “Investing in the Future,” projects that by 2030 the typical client base will be dramatically altered, as Gen X approaches retirement, Gen Y matures and the middle class in emerging markets expands.
“It is no longer just about attracting the clients who are armed with cash and ready to invest. The successful asset managers of tomorrow must focus on building cradle-to-grave relationships with a dramatically different and more diverse client base from today,” cautioned Brown.
“People are living longer and taking greater responsibility for their own retirement planning. Younger generations will likely save more as they see their parents run out of money in retirement. We also expect to see a significant boost of new money from the growing middle class in China, Mexico, India, Nigeria and other developing economies over the next 15 years,” he said.
“There is huge risk that the global economy can’t grow fast enough to absorb the volume of savings needed to fund the needs of an ageing population.”
The report also focuses on the importance of technological investment.
“Technology plays a critical role in the industry’s future. The clients of the future will be fundamentally different in terms of their needs and expectations. They will demand more personalized information, education and advice that will require asset managers to radically address their technology capabilities to really understand their clients and support this level of service,” said Ian Smith, financial services strategy partner with KPMG in the UK.
“Asset managers still have a long way to go to recognize and exploit big data and data analytics. White IT is already attracting a significant amount of investment, it is not being channeled into the right areas…There is too little focus on building the architecture to meet the business needs of tomorrow. Platforms will need to be completely redesigned with the flexibility to support a much more diverse client base and deliver a step change in costs, control and client experience.”
There is consequently enormous opportunity for non-traditional plays.
“New entrants who aren’t plagued by legacy issues and outdated clunky systems can thrive as they can move quickly to implement more relevant digital and data strategies. Trusted brands that resonate and appeal to a more diverse client base, as well as the younger generation, may be able to build scale quickly.”
The report said that giant technology companies like Apple, Google and Amazon could become major players in asset management by 2030.
“We could see technology companies or large retailers of the world becoming the next big powerhouses in investment management. 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,” Smith concluded.
The report also predicts that social media will play a much bigger role in money management. “The growing relevance on online communities and social networks is also changing attitudes and behaviors,” said Smith. “Consumers are increasingly looking to ‘people like me’ rather than professionals for advice, guidance and direction.”