So announces this week’s Wealth Management.com. The headline refers to a new report from Boston Consulting Group that reveals both revenues and profits of the asset management industry have declined for the first year since the financial crisis.
It turns out the culprit is passive investing. Active core investing, as high as 60% in 2003, now accounts for only 35% of core investments and headed for less than 30% by 2021.1 In 2016, net inflows to passive topped $100 billion while net outflows from active exceeded $150 billion.2 This broad demand shift to commodified, low cost products is increasing pressure on fee revenues for both active managers losing market share and passive managers lacking scale economies.
But on the wealth (vs. asset) management end of the industry, the profitability outlook does not seem so dire. Most studies suggest that true advisory fees that cover planning, portfolio construction and selection of underlying investments have remained relatively stable at least since the Crash. Yes, there are the pernicious and cheap robo-investors, invading the industry like so many Asian carp trying to get into the Great Lakes. But their market penetration has remained relatively modest and the limitations of their advisory front ends align them more with the asset than wealth management providers.
So if you are a planning driven, true wealth manager, any rumors of your profession’s death are, in our opinion, exaggerated and very premature. As far as we know, no one’s yet come up with a machine that’s equal parts money manager, industry expert, psychiatrist, confessor and confidante. The key is to position yourself and your firm as such and not as a product vendor.
1Global Asset Management 2017: The Innovator’s Advantage, Boston Consulting Group, 2017
2 The Wall Street Journal, October 17, 2016