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DRIVING DISRUPTION

Survival of the fittest

The asset and wealth management (AWM) industry in Asia-Pacific faces dramatic changes and with it, increased wealth and opportunities

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THE asset and wealth management (AWM) industry is facing intense pressure on profitability with rising costs and evolving revenue streams. Against the backdrop of shifting market dynamics, the industry will see fees, products, distribution regimes, regulation, use of technology and people skills change dramatically in the coming years.

With economies across the Asia-Pacific (Apac) opening up, increased wealth and prosperity will bring more opportunities for international asset managers to establish onshore activities or expand current operations to take advantage of the growth in investible assets.

Additionally, local boutique players in Apac will continue to grow as regional talent spreads its wings and begins to venture out to bigger and better local opportunities. All of these developments point to substantial rewards for the asset and wealth managers who can successfully navigate the challenges and tap the emerging Apac market.

Trends that shape the AWM industry

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PwC forecasts that Apac assets under management (AUM) will grow faster than any other region globally and reach US$29.6 trillion in 2025. This growth will provide local, regional, and global asset and wealth managers with excellent incentives to invest in the region and establish or expand their operations.

However, some challenges such as geopolitical issues, trade tensions, and tax issues, among others, will persist.

Five core trends will spur the phenomenal growth in Apac AUM and shape the future of the industry. These trends are:

Regional inter-connectivity - Apac's fund passporting schemes, especially the Asia Region Funds Passport scheme, will deepen financial integration across developed markets and drive the region to be more cooperative and inter-connected, from fund product development to marketing and cross-border distribution.

  • Buyer's market: Thanks to the increased scrutiny placed on asset managers by investors and regulators, the investor now has a much greater influence on the market. This will result in lower fees, increased transparency, and greater investor protection where asset managers will be made accountable for investor suitability and investment advice.
  • The search for outcomes: Passive strategies will gain favour over active strategies and AWM players will need to build strong multi-asset solutions to enhance their value offerings. Further, social investing strategies will come to the forefront of investment products.
  • Funding the future: AWM managers will become the financiers of infrastructure and real estate projects across the region. Additionally, as Asia faces the challenges of an ageing population, countries will switch from unfunded to funded pensions, and AWM players will be integral to developing solutions to support the financing and investment needs of these populations.
  • Digital technologies: With a younger generation of tech-savvy investors entering the scene, traditional AWM channels will slowly become obsolete, and digitised offerings which integrate artificial intelligence and machine learning will create differentiated services and more efficient value chains.

Integrating technology

Robo-platforms, retail shopping, and other social media channels have the ability to completely overtake traditional distribution channels in the long term. This trend is likely to be seen more in developing economies, which will likely leapfrog more mature fund centres with the use of mobile and online platforms. Developed economies are not likely to resist too long though and many traditional distributors are now investing heavily in mobile and digital distribution platforms.

Additionally, a rise in digital banks is set to take the market by storm and will pose a challenge to traditional distribution channels. Such a development would see direct-to-consumer AWM managers control the end-client relationship and product manufacturers will find new ways to engage with investors via customer delivery platforms, selling an investment experience and outcome-based solutions, rather than focus on products.

The advent of blockchain has also brought forth a secure framework for transactions and AWM players are now exploring how to harness the practical applications of blockchain, possibly creating a regional settlement platform for all equity, bond, and derivative trades across key markets in the region.

Digital identities on centralised Cloud servers could become the norm - meaning all financial records and investment portfolios are digitally connected along with current and projected cash flows being tracked in real-time.

This would link all financial and regulatory information through a shared digital network whereby regulators and investors alike could pull information on product, volume, pricing, historical trend analysis and market projections directly from a single source maintained by designated utilities.

Data from asset managers, custodians, fund administrators, brokers/counterparties, transfer agents and other information exchanges would be connected with each other and with regulators. Regulatory information and returns would also no longer need to be submitted as it could be accessed online, on a real-time basis, leading to substantial reductions in compliance costs and increased efficiency.

As the economic centre of the world shifts ever-eastward, dramatic changes are likely to sweep the region in a relatively short space of time which will bring exciting opportunities and challenges for Apac's AWM landscape.

AWM players must be able to navigate the new normal and take risks in order to survive. Only the most agile will come out top. W