Profitability Is Key Challenge For Asset Managers
Friday, January 06, 2012

The profitability of fund management groups is being threatened by a combination of cautious clients, increased regulation, competition from passive funds and demographic change, according to the business advisory firm Deloitte.

The firms says that fund managers face a number of challenges as investors eschew riskier, more volatile assets in favour of cash holdings and investments with guaranteed income.

Passive investments with very low fees are becoming more popular at the expense of active funds with higher fees, the firm notes, while demographic change driven by baby boomers entering retirement will see greater demand for asset protection and drawdown, and less asset accumulation.

Another major challenge for fund managers will be compliance with an increasing array of regulations which are being imposed in various countries and regions, including the European Union Alternative Investment Fund Manager Directive, the United States Foreign Account Tax Compliance Act, the Retail Distribution Review in the United Kingdom, and Undertakings for Collective Investments and Transferable Securities (UCITS) in the EU, all of which are only expected to increase asset management firms' costs.

“The financial upheavals of the past years, increased regulation, an ageing population and increased consumer focus on costs are putting a huge amount of pressure on fund managers’ profitability," observes Eliza Dungworth, lead investment manager partner at Deloitte in the UK.

"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," she concluded.