“Profitability is the key challenge for asset managers,” says Eliza Dungworth, head of investment management at Deloitte, “and it is being threatened by a combination of cautious clients, increased regulation, competition from passive funds and demographic change. The funds might be selling well but not making any money.”
The working relationship between fund management groups, wealth managers and high-net worth client is constantly changing and the pace of this change, encouraged by RDR, is quickening.
Along the way, business is becoming far more intermediated, Dungworth suggests, adding: “Fund management groups don’t have much direct [individual client] contact any more so their share of fees will be squeezed. They could see fees drop by as much 65 basis points so their challenge is to reach their necessary revenue lines.”
Wealth managers, on the other hand, have a closer relationship with the end investor so Dungworth argues it is the fund management groups that need to understand their profitability that much more.
“One problem for fund managers is their revenue is largely a percentage of assets under management which is influenced both by markets as well as investor inflows and outflows,” she said.
Historically, they would look at reducing their fixed costs, that is head count, but Deloitte’s dealings with fund management shows this is a very short-term solution.
“They have to look at which parts of their business make money. How many know how much money is made on products and distribution lines?” she asks, before concluding: “Many fund managers often struggle to obtain a clear picture of how profitable their products, clients, services and distribution channels are, but what they need to do is make fundamental changes to the way in which they conduct business and focus on profitability management to ensure survival in a difficult market.”
