office workers in a buldingOverall, expenses have outpaced or matched revenue growth duringthe past four to five years. (Photo: Bloomberg)

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(Bloomberg) — Asset managers can add rising regulatory andtechnology costs to their list of woes as they struggle to expandrevenue amid pressure to lower fees and expenses.

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Non-compensation costs, which also include back officeprocessing and office space, make up nearly one-third of totalexpenses at such firms, up from 26% in 2014, according to anindustry study released Tuesday by Deloitte Consulting's CaseyQuirk and Aon Plc's McLagan.

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Overall, expenses have outpaced or matched revenue growth duringthe past four to five years, while aggregate fees declined almost20%, the study found. Industry revenue expanded only 8% from 2015to 2018, reaching $289 billion. By contrast, assets jumped 20%during that period to $71.8 trillion.

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McLagan Partner Adam Barnett predicts the disruption will onlyintensify. “Today's environment serves as a warm-up to challengeswe expect during the next market downturn,” he said. “Firms mustmore effectively manage their costs and clarify their value-sharingpropositions with employees and shareholders.”

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Implementing such initiatives may cut firm expenses by as muchas 17% and also save the industry up to $13 billion, theconsultants said.

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“It's now a necessity, not a luxury, for asset managers toreduce expenses by automating, streamlining data and technology,and shifting functions to lower cost locations,” said AmandaWalters, senior manager at Casey Quirk. “Performance alone isn'tgoing to win the day,” she said in a separate interview.

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The study includes data from more than 70 investment managementfirms based in North America, Europe and Asia with more than $30trillion combined. Data from Morningstar Inc. and eVestment werealso used.

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