Annualised organic growth in the global asset management industry has been tipped to shrink below 2% by 2020.
This is according to a white paper from consultancy firm Casey Quirk & Associates, which also forecasts that 120% of net inflows into will come from private investors by the next decade, an increase from 90% in 2014.
For asset management firms, this will accelerate a focus on hiring and retaining talent, outcome-oriented product innovation, brand, market-leading systems, and risk management, according to the paper, titled “The Roar of the Crowd: How Individual Investors Transform Competition in Asset Management.
The researchers point out the economics of the industry remain attractive with revenues and operating profit margins touching all-time highs in 2014. While Casey Quirk says dynamics remain positive despite the market volatility of 2015, it fears too many firms are chasing slower-growing business.
It highlighted pressures are also coming from new entrants, with 20% more asset managers supplying the industry and intensifying competition, in turn creating greater fee compression in the marketplace.
The consultancy urged firms not to ignore the growing importance of the individual as a major growth driver, saying this shift in the market place represents both a 'challenge' and an 'opportunity' for asset managers. Assets fully integrated under investment advice have grown nearly twice as fast as traditionally intermediated assets since 2008.
The rise of the individual investor also will accelerate some longer-term changes in the industry, according to the firm.
These include the widening in the range of profitability between successful and unsuccessful asset managers and new engagement model and product set to capture the imagination of the individual.
The rise of online intermediation is a threat and while tech providers will not necessarily become direct competitors to asset managers, they have the capacity to ally themselves with a range of financial services companies to support advice delivery to individuals.
Other key changes could see those firm with bigger brand budgets become more effective owners of asset managers. This could spur M&A activity and encourage industry concentration.
Finally, while investment performance remains a key ingredient of success, the white paper suggests it will become more difficult to report, measure and compensate (through fees) in an outcome-oriented, individual-driven world, making brand more important.
'Producing a slightly better mousetrap is not going to cut it in this era of individual investors guiding investment flows, said Benjamin Phillips, a co-author of the paper and a partner at Casey Quirk.