Nine Trends Transforming Asset Management

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Nine key drivers of changefor the global wealth andasset management industry


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| Nine key drivers of change for the global wealth and asset management industry

Tumultuous change may be in store for the global

wealth and asset management industry in the

year ahead. The US interest rate environment islikely to shift direction before the end of the year,

the Eurozone and an outright recession in many

emerging-market economies will also weigh

opportunities, or threats, of technology are ever

the horizon, offering services at rock-bottom

pricing, unparalleled levels of transparency and

rise of the machines in the form of electronic

distribution platforms and robo-advisors may

reshape distribution, wealth management and

the institutional and retail level.


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3Nine key drivers of change for the global wealth and asset management industry |

In order of impact, we anticipate the top nine drivers for change in

the global wealth and asset management industry will be:

1. The year of MiFID II — and transparency. As the signaturepost-GFC regulatory legislation in the US, the Dodd-Frank Act

restructured the compliance environment for that nation’s

widespread effect on the regulatory framework for the

is the world’s second-largest market in terms of assets under

particularly in how they distribute products, incentivize their

client-facing advisors, and communicate and interact with

thoroughly reviewing and possibly rewriting their playbooks

Department of Labor should shortly issue a decision on whether

client-facing advisors will be bound by a highly stringent

and enhanced regulatory framework may very well restructure

how total fees are disclosed and how funds are distributed in the

changing compliance environment will continue to drive change

2. The drive to grow the top line will likely accelerate M&A

activity. Growth through traditional organic strategies — such

as increased spending on marketing, advertising, enhancing

the product suite and hiring strategically — is costly and can

3. The spending on private wealth management (PWM) growthwill cool — and refocus.

private wealth management businesses in terms of increasing

business model in wealth management offerings made it a

and more proven books of business, and the heavy investment

in brand equity and marketing that came with the increased

change direction and shift focus toward organic growth, as well

a far more targeted and personalized approach to marketing

and client service will slowly be implemented, in which client-


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4. The day of reckoning in pensions is near.

been made, often in legally binding government-guaranteed

few assets have been set aside to fund those future promises

policymakers and stakeholders to address the growing and

likely require more public sector debt to be issued to partially

little actual capital has been set aside to safely meet growing

AustraliaBrazil1

Canada

South Africa

Germany2

Hong Kong

IrelandNetherlands

France

Switzerland4

UK

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%

1 0 - y e a r C A G R

Pension AUM/GDP %*

Total Assets 2013e

US5

18.9

Japan3

All the 13 major pension markets (in the chart below) have experienced an increase

in their pension assets during the past 10 years. However, the general litmus test for

adequate funding is for assets to be at least 150% of GDP.


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5. The robo-advisor has arrived. A number of electronic

few years — and still more will enter the market and see even

by algorithms, these low-cost, automated advisory platforms,

very effectively target the lower- to middle-income segments

making service to lower- or middle-income investors, it is

still unclear whether rock-bottom pricing can eventually

airlines are launched each year in the global aviation market

and grow rapidly due to rock-bottom pricing, and they are

operations due to cut-rate pricing and negative operating

But at the same time, liabilities are also rising. In the US, in particular, the funded

status (proportion of all future liabilities that can safely be met based upon current

assets and actuarial assumptions) is steadily declining.

87%

84%

79%

76%75%

72% 72%

2007 2008 2009 2010 2011 2012 2013 E

Aggregate funded status of US DB public plans^^


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6. ETFs have become the giant gorilla in the room.

into all alternative investment products within two or three

including hedge funds as well as private equity, private debt,

registered or an alternative product, will be forced to compete

10% 11%

7%

22%

12%

26%

US Europe^

2014 AUM two-year CAGR*

Mutual funds ETFs


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7. Fixed income is still alive — and very much kicking.

target date funds, is stronger than ever, owing to the rapidly growing market segment

-150

-100

-50

0

50

100

150

200

250

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2012 2013 2014

N e t s a l e s ( i n U S $ b )

Equity Bond Money market Balanced Other


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8. Emerging markets (EMs) will see limited growth. ruble crisis, weakening global commodity prices and the bubble

emerging and frontier markets are all too familiar with volatility

will likely rationalize capacity in terms of spending, product

a potentially vast market that it more than merits continued

investment and attention, albeit somewhat moderated from

volatility, transparency and regulatory oversight, as well as a

10.1%

11.3%

12.7%

14.2%

9.6%9.2%

10.4%

9.3%

7.7% 7.7% 7.4% 7.1% 6.8% 6.6% 6.4%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

China’s GDP growth rate

Note: 2013–18 are estimates

After having experienced double-digit growth for years, China is now heading for more muted growth


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9. Share buybacks will accelerate.

will look to enhance their capital structure and return cash to

Outstanding stock repurchase authorization (US$m) as on September 2014**

412

AMG*

1,737

BEN*

20

FII*

1,277

IVZ

190

LM

273

NTRS

617

TROW*

… and outstanding repurchase authorizations indicate share buyback activity is likely to continue

Buyback in 3Q14 (US$m)**

AMG BEN FII^ IVZ LM NTRS TROW


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0 | Nine key drivers of change for the global wealth and asset management industry

Michael Lee

Leader

Alex Birkin

Advisory Leader

Nadine Mirchandani

Dan Shoenholz

Theodore Kim


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Michael Lee

Leader

Tom Flannery

Mike Serota

Graeme McKenzie

Roy Stockell

Japan

Toshio Iwabu

Alex Birkin

Sue Dawe

Our global and regional leadership

Mike DiLecce

Mike Serota

Transactions

Nadine Mirchandani


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Nine Trends Transforming Asset Management