By 2027, one in six (16%) of global asset and wealth managers will vanish amid a range of unique ‘existential’ pressures, according to PricewaterhouseCoopers (PwC).

The accountancy firm’s 2023 Global Asset and Wealth Management survey anticipates asset managers will be pushed to intensify consolidation over the next four years. This is double the historical rate of turnover. 

The uncertainty created by rising rates, high inflation, and entrenched geopolitical risk has led 73% of the survey’s respondents to consider strategic consolidation with another asset manager in the near term.

These pressures have contributed to a decline in assets under management (AUM), which fell by 10% to $115.1tn (£89.9tn) in 2022, down from a 2021 high of $127.5tn. This is the largest annual decline in assets in a decade. Assets are expected to rebound to $147.3tn by 2027, however.

Existential Challenges
The survey, which looked at 250 asset management and 250 institutional investors from around the world, said the industry is grappling with a set of existential challenges exceeding those of any previous era.

Olwyn Alexander, global asset & wealth management leader, PwC Ireland, said: ‘Existential challenges are sweeping the asset and wealth management industry against a backdrop of social, economic and geopolitical disruption.’ 

Alexander believes that if asset managers fail to adapt they will fail. ‘Firms that effectively leverage technology such as generative AI and robo-advisors, build meaningful inroads to new and existing customers, diversify their recruitment, and deliver exceptional client experiences will be well-positioned to not only survive, but thrive,’ he said. 

This survey comes amid a wave of major consolidation among UK investment groups, including the merger of Investec’s UK wealth business and Rathbones to create a £100bn giant, and the purchase of Switzerland-based asset manager GAM by Liontrust Asset Management. Last year RBC struck a deal to acquire Brewin Dolphin. 

The rise of custom indexing
PwC noted that asset and wealth managers are turning to AI, disruptive technologies and individualised indexing. It predicts assets managed by robo-advisers will reach $5.9tn by 2027, more than double the figure of $2.5tn in 2022.

 
 
Individualised indexing is also gaining popularity, particularly among investors seeking tax optimisation benefits, as well as those interested in ESG, factor investing and algorithmic portfolio construction. Nearly 40% of institutional investors are planning to invest in custom indexing products in the coming 12 to 24 months, whereas almost half of asset managers expect to add individualised indexing solutions to their offerings, according to the survey. 

By 2027, PwC expects direct indexed AUM to have more than tripled to $1.47tn, roughly 1% of total AUM, while active ETFs are forecasted to rise from $4.6bn to $1.1tn – accounting for 7.5% of the global ETF market by 2027.

John Garvey, global financial services leader, PwC United States, said: ‘The rebound in equity valuations over the first six months of 2023 is a testament to the resiliency of the markets and the benefits of diversification.

‘We’re in fact already seeing the emergence of a new breed of investment firm: AI tech-enabled, customer-focused and prepared to operate across a wide range of asset types, both within and outside traditional asset and wealth management.’ 

Benefits of consolidation
In response to the survey, Ian Partington, CEO of Third Financial, a wealth management platform, outlined the benefit of consolidation in the wealth management sector. 

‘Many consolidators are backed by private equity firms, and an out-of-date notion persists that there is something sinister about them operating in an industry characterised by deeply personal, long-term relationships that sometimes span generations,’ Partington said. 

‘But consolidation is a normal part of any industry. It helps to establish economies of scale that drive down the cost of the service, making it more affordable for the end-client. For wealth management, this means closing the advice gap, meaning more people who would benefit from financial guidance end up receiving it.’ 

Partington also said firms looking for scale need to simplify their operating models and future-proof their tech systems, to allow for acquisitions to be onboarded seamlessly and new colleagues and clients – especially the next generation – to be retained.

‘The wealth management segment lags other financial services on the technology front, so these transactions should be seen as a benevolent force in a fragmented industry, driving up standards,’ Partington said.