Asset managers can add rising regulatory and technology costs to their list of woes as they struggle to expand revenue amid pressure to lower fees and expenses.
Non-compensation costs, which also include back office processing and office space, make up nearly one-third of total expenses at such firms, up from 26% in 2014, according to study from by Deloitte’s Casey Quirk and Aon’s McLagan.
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Patrick Nelli is the CEO & Founder of Aligned Marketplace. Prior to Aligned Marketplace, Patrick spent a decade at Health Catalyst (HCAT), a data and analytics company focused on supporting some of the largest healthcare organizations in the country, where he was President and Chief Financial Officer and helped take the company public. At Health Catalyst, he helped build value-based care analytics for some of the largest ACOs in the country in pursuit of Health Catalyst's mission to deliver data-informed improvement. Patrick's passion is to drive as much healthcare improvement as possible through innovation.
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Overall, expenses have outpaced or matched revenue growth during the past four to five years, while aggregate fees declined almost 20%, the study found. Industry revenue expanded only 8% from 2015 to 2018, reaching $289 billion. By contrast, assets jumped 20% during that period to $71.8 trillion.
McLagan Partner Adam Barnett predicts the disruption will only intensify. “Today’s environment serves as a warm-up to challenges we expect during the next market downturn,” he said. “Firms must more effectively manage their costs and clarify their value-sharing propositions with employees and shareholders.”
Implementing such initiatives may cut firm expenses by as much as 17% and also save the industry up to $13 billion, the consultants said.
“It’s now a necessity, not a luxury, for asset managers to reduce expenses by automating, streamlining data and technology, and shifting functions to lower cost locations,” said Amanda Walters, senior manager at Casey Quirk. “Performance alone isn’t going to win the day."
The study includes data from more than 70 investment management firms based in North America, Europe and Asia with more than $30 trillion combined. Data from Morningstar and eVestment were also used. — Additional reporting by Annie Massa
