There are two things putting pressure on fees and costs in the investment and wealth management industry: one is cyclical and client driven, and the other is secular and supplier driven.
The cyclical pressure is a result of the low inflation, low growth, low interest rate, low return environment.
Secular pressure is down to the impact of computer processing power, big data and communications, which are finally bringing down the costs of financial intermediation.
Even if the cyclical factors ameliorate, we do not expect the pressure on costs to go away.
Pressure cooker
Anyone working in investment and wealth management will be familiar with the relentless external pressure from clients to cut costs.
Their logical response to low returns is to ask fiduciaries to share the pain. In the past, ad valorem investment management fees were covered by Libor or asset inflation. Now, even modest fees are more starkly visible.
And the investment performance from which you might take a share has been harder to come by.
There is no clue as to when we will revert to higher levels of growth, inflation, interest rates and investment returns. But will clients then reduce their focus on fees and costs?
Perhaps, but it will not matter because the big change is the secular one, and its source is within our industry.
