distribution and asset management leadership in 2020...

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Distribution and Asset Management Leadership in 2020: Success Factors

Ben Phillips, Partner

6 June 2016


1

Today’s conversation

The New NormalRise of Advice Transforms

the IndustryLooking Ahead:

Winning Strategies

• 2015: slowing growth, margin compression

• The “winner take all” dynamic accelerated

– Fewer winning players

– Active components struggled

– Individuals took control

• Outcome and advice gain prominence over products

– Regulation changes advice delivery

– Gatekeepers are becoming more critical

– Technology creates effective, efficient delivery

• Industry value chain is compressing

• Distributors are gaining share of asset allocation

• Distributors will compete by strengthening allocation skills and using technology

• Winning asset managers will differentiate their value proposition to customers


2

The New Normal

Global asset management is becoming fiercely competitive

Unlike in previous years, capital markets did not buoy asset growth

Global AUM Growth Capital Appreciation & Net Flows

2.3%

2.6%

1.3%

10.0%

7.9%

1.5%0%

2%

4%

6%

8%

10%

12%

14%

’13

12.3%

AU

M G

row

th (

%)

’14

10.5%

’15

2.8%

Net New Flow Capital Appreciation

An increasing share of managers are experiencing outflows

Global Retail and Institutional Flows2013-2015, Manager Flow Experience

(% of all Managers*)

37% 40% 44%

63% 60% 56%

2013

PositiveFlows

NegativeFlows

20152014

Sources: Simfund, eVestment, Casey Quirk analysis

*Only includes managers with at least $10bn of AUM


3

The New Normal

Passive, allocation and alternative products account for most new growth

Advisors are allocating more funds to indexing…

Net New Flow Concentration2012-2015, Global Registered Funds ($bn)

Note: Excludes cash. Sources: Simfund, eVestment, Casey Quirk analysis

36%

4%

26%

$789

8%

72%

$989

Passive

2015

10%

24%

2014

-4%

11%

TraditionalActive

Alts

MACS 17%

$927$848

2013

10%

46%

36%

36%

18%

2012

49%

41%

46%

171% 21% 27%

18%16%

23%

-64%

$189

OtherEurope

$341

-3%

$259

-4%

USA

9%

Net New Flow ConcentrationBy Registered Fund Domicile*,

2015, $bn

… especially in America


4

New Opportunities

Industry dynamics

The rising influence of individuals is changing how investors seek advice

Institutional investors Individual investors Industry impact

Able to build portfolios from existing strategies

Seeking advice customizedto individual needs

More Service-Focused

Accredited investors Consumer investors More Regulated

More concentrated, RFP-driven buyer landscape

Fragmented buyer landscape

More Inefficient

Seeking optimized performance to meet liabilities over long term

Seeking specific cash flows over both short and long term

More Outcome-Oriented

A Redistribution of Product Opportunity

A Challenge to Maintain Operating Leverage

A Shift from Products to Services

1

3

2

A Re-Arranged Value Chain

4

Secular industry transition


5Source: Casey Quirk analysis

Global Financial Wealth Assets and Flows2012-2014

Industry dynamics

Other financial services firms are aggressively entering the advice business

Flow of New Wealth Unmanaged Flow of New HNWI Wealth

44% 43%

22% 23%

12% 13%

16% 15%

5% 4%

1% 2%

6%

39%

32%

25%

11%

-13%

Global Financial Wealth

Total (€T) €114T €143T €7.8T

2012 2014 2012-14

Pension Funds

Mass Affluent

Managed by AMs

Other

Insurance

HNWI

Managed by AMs

Internal or Unmanaged Assets 46%

40%

Wealth Management

15%

Direct Investment

Banks

€2.6T


6

Offers financial planning and proprietary multi-manager funds

Offer full-service financial planning tools

Platforms

Offer financial planning & personalized service delivered by advisors

Add automated advisory

Offer asset allocation products

Investment

Managers

From product to advice

The rise of advice is leading to vertical integration across the value chain

Wealth Management Value Chain

Product AdviceAllocation

Role

…as platforms take on a greater role in allocation and product development

U.S. Retail Intermediary RevenueBy Provider, 2007 vs. 2014

33%36%

32% 28%

37%35%

Product Revenue-Asset Managers

Advice Revenue-Financial Advisors

2007 2014

Intermediary Revenue-B/Ds and Platforms

Asset managers are losing share…


7

Europe

Gatekeepers are playing a more active role in developing and delivering advice

Asset Managers’ Technology Spend2009 – 2014, % of Total Functional Costs*

Centralized models will gain prominence…

Gatekeeper Centralized Delivery ModelsIndustry Size, US+Europe, AUM $bn, 2015-2020

Asset Managers’ Technology Spend2009 – 2014, % of Total Functional Costs*

…and delivery will take different forms

$3,134

$881

2015

+29%

2020

Open Architecture

Closed Architecture

Execution only sale of proprietary product

without advice

Manager selection and asset allocation of third-

party products

Centralized Advice Models

Description Growth Prospects

Automated

Delivery of product/advice through

technology platforms


8

Europe

The impact of advice model change will vary by country and channel

Source: Casey Quirk Global Demand Model

Net Flow by Model by Country2015-2020, €b

Private Banks

Retail Banks

Independents

Other Retail

Market scale and added regulation at the country level increases impact

Private banks will face fewer impediments than down-market competitors

€303 €291 €294

€172 €153€117 €110

€333

€201€158

€165

€58€48 €56

€34€6

Netherlands

€40

€636

€211

NordicsItaly

€491

Switzerland

€166

UK

€452

Germany

€166

France Spain

€337

Advisor Discretionary

Centralized Models

Scale of ImpactHigh Low

NNF Rate’15-20 Impact

• Reduce clients served• Press towards more

discretionary relationships

• Opt for execution only in MiFID markets

• Offer robo advisor or multi-asset product

• Tale of two markets – UK and continent

• Greater centralization

• Insurance firms shift focus toward guaranteed products

• D2C emerges as robo-offerings proliferate

3.7%

1.5%

2.9%

2.8%

Channel


9

New competition in distribution

Technology will become a key driver of advice delivery in the future

Past Current Future

• Outcomes-based planning, benchmark-driven assessment

• Focus on HNW/wealthy, succession recognized

• Small practices with financial planners become mainstream

• Siloed investment advice and product access

• Outcomes-based planning and assessment

• Multigenerational focus

• Full-service firms with specialized skills

• Disintermediation accelerates with increased hybrid technology/advisor models

• Returns-based advice

• Focused on HNW/wealthy

• Manual, people driven approach

Advice Delivery Timeline

Use

of

Tech

no

log

y

Asset Managers

Insurance

Financial Advisors

Fintech

Investment Counselor Model

Technology-Enabled, Holistic ProvidersA

dvi

ce

Pro

vid

ers

Limited Business Infrastructure Complements FA advice


10

Investment Performance

Price

Revenue-Sharing

Product Differentiation

BrandSpecialized

EngagementRisk

Management

Less Effective: “Compete Better”Relative outperformance

against large number of similar peers

1 2 3 4

New competition in asset management

For asset managers, success depends on differentiation, not relative performance

More Effective: “Compete Differently”Differentiate value proposition to reduce number of potential rivals

Competitive Responses in Asset Management

Talent Management

Higher-Tech Data Architecture

Corporate Development

A

B

C

Key Future Differentiators

Critical Success Requirements

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