http://www.economist.com/news/finance-and-economics/21695552-consumers-are-finally-revolting-against-outdated-industry-tide-turns
Profit margins in the asset-management industry were 39% in 2014, according to BCG, a consultancy, compared with 8% in consumer goods and 20% in pharmaceuticals. The industry’s global profits in 2014 were an estimated $102 billion, allowing firms to pay those picking stocks in the American equity market an average salary of around $690,000 a year. Better yet, asset-management is growing fast: the industry looks after $78 trillion worldwide, and could shepherd over $100 trillion by 2020.
Regulation and technology are adding to the challenges for incumbents. In the wake of the financial crisis, regulators focused on the banks. Now they are looking at asset managers, with everything from the transparency of their fees to the liquidity of their investments under the spotlight. In America, the Department of Labour plans to introduce rules later this year obliging most financial professionals to suggest investments that are not just “suitable”, as current regulation has it, but “in the best interest” of customers. That will make it difficult to recommend investments in funds which pay the advisers a commission. A similar reform took effect in Britain in 2013. Account statements will also tell customers how much they are paying in fees.
Meanwhile, institutional investors are reducing the number of managers they deal with. RPMI Railpen, a British pension fund, has gone from 20 external equity managers in 2013 to seven today. According to a survey by State Street, a financial-services group, four out of five pension funds plan to increase in-house asset management. Investors are also reconsidering their exposure to high-charging hedge-fund and private-equity managers. CALPERS, a big Californian pension fund, has dumped its hedge-fund managers. PGGM, which manages Dutch pension money, has halved what it pays for infrastructure investments since 2008, mostly by investing directly. Some pension funds are clubbing together to negotiate lower fees.
Profit margins in the asset-management industry were 39% in 2014, according to BCG, a consultancy, compared with 8% in consumer goods and 20% in pharmaceuticals. The industry’s global profits in 2014 were an estimated $102 billion, allowing firms to pay those picking stocks in the American equity market an average salary of around $690,000 a year. Better yet, asset-management is growing fast: the industry looks after $78 trillion worldwide, and could shepherd over $100 trillion by 2020.
Regulation and technology are adding to the challenges for incumbents. In the wake of the financial crisis, regulators focused on the banks. Now they are looking at asset managers, with everything from the transparency of their fees to the liquidity of their investments under the spotlight. In America, the Department of Labour plans to introduce rules later this year obliging most financial professionals to suggest investments that are not just “suitable”, as current regulation has it, but “in the best interest” of customers. That will make it difficult to recommend investments in funds which pay the advisers a commission. A similar reform took effect in Britain in 2013. Account statements will also tell customers how much they are paying in fees.
Meanwhile, institutional investors are reducing the number of managers they deal with. RPMI Railpen, a British pension fund, has gone from 20 external equity managers in 2013 to seven today. According to a survey by State Street, a financial-services group, four out of five pension funds plan to increase in-house asset management. Investors are also reconsidering their exposure to high-charging hedge-fund and private-equity managers. CALPERS, a big Californian pension fund, has dumped its hedge-fund managers. PGGM, which manages Dutch pension money, has halved what it pays for infrastructure investments since 2008, mostly by investing directly. Some pension funds are clubbing together to negotiate lower fees.
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