remarks and discussion - sec · 2020-01-09 · asset management advisory committee. january 14,...

Remarks and DiscussionU.S. Securities and Exchange CommissionAsset Management Advisory Committee

January 14, 2020

Ben Phillips, Principal, Deloitte Consulting LLP

Casey Quirk | Confidential and Proprietary. For internal client use onlyCopyright © 2020 Deloitte Development LLC. All rights reserved. 1

The strongest shifts seen in 40 years are transforming U.S. asset management

1 Demand 2 Supply 3 Impact

• Demographic changes

• Customized, outcome-oriented advice needs

• Consolidating intermediaries

• Fee sensitivity

• Lower organic growth

• Vendor oversupply

• New capital markets

• Passive investing

• Rising fixed costs

• Margin pressure

• Holistic advice as value proposition

• Less registered product

• Different pricing

• More direct-to-consumer sales

• More automation

• Investor data as a core asset

• Activism and social-impact investing

• More public-private portfolios

Changing buyers + maturing economics = transition from product to service industry


Demand overviewBuyers are becoming younger, older, more outcome-oriented and fee-sensitive

Demographic changes

• Baby boomers shift from accumulation to income• Debt-heavy, risk-averse millennials favor cash flow1

Customized, outcome-oriented advice needs

• Investor emphasis on objectives, not only excess return• Individuals seek advice across investment, tax, protection• Focus on client experience, trust, personalization

2

Consolidating intermediaries

• Fiduciary risk, tech needs favor scale advice providers• Exodus of advice talent spurs consolidation• New professional buying dynamics emerging industrywide

3

Fee sensitivity• QE’s smaller risk-free rates highlight management fees• Fee budgets favor providing income rather than return4

Lower organic growth

• Retirement funds in decumulation mode• Fewer new asset pools to tap for professional management• Without new money, asset managers must compete to grow

5

Additional data

5

6

7

8, 15

8


Supply overviewTighter client opportunities are fueling more rivalry among asset managers

Oversupply• Investment quality accrues to subset of providers• Only a minority of asset managers are growing organically1

Changing capital markets

• Fewer publicly traded companies frustrates stockpickers• Private markets perceived as higher-yield in low-rate world2

Passive investing

• Outcome-oriented advisors emphasize allocation skills• Fee pressure favors exposures, not stock selection3

Rising fixed costs

• Tech for customization, client experience boosts expenses• Poor leverage across wide range of subscale business lines4

Pressure on profits

• Lower growth, higher cost pressuring margin• Widening range between winners and losers5

Additional data

9,10

11

12

13

14


Impact overviewCombined, demand & supply catalysts are reshaping U.S. asset management

Advice as the value proposition

• Asset managers extend intellectual property beyond portfolios• More focus on additional tools, services, models and overlays1

Less registered product

• Customization demands, tax concerns disadvantage pooled funds• Distributed-ledger technology aids customization initiatives 2

Different pricing methods

• Outcome-oriented advisors emphasize allocation skills• Fee pressure favors exposures, not stock selection

3

More direct-to-consumer distribution

• Seeking more client data, access, asset managers offer advice• Technology blurs lines between asset and wealth managers

4

15

16

17

18

More automation• Cost concerns, alternative data mechanize some investments• Advice provision relies more on AI and algorithms 5

Focus on data accumulation

• Client data plays a strategic role in shaping advice offers• Increasing use of economic models trading data for advice6

More listed-unlisted investing

• Wider individual investor exposure to private equity• Innovations around liquidity and unitization fuel usage

7

Activism and social-impact investing

• Active investors seeking differentiation wield more voting power• ESG demand from younger investors reshapes investment processes8

19

19

20

21

Additional data


Notes: Millennials (born between 1982-2002), Generation X (1961-81), Baby Boomers (before 1960), Boomers + (before 1960, net worth > U.S.$250K); Retirees are age 65+Sources: Deloitte Center for Financial Services, Investment Company Institute, Vanguard (“How America Saves”)

Additional data: DemandDemographic changes

33%

9%

16%

14%31%

50% 45%

4%

2015 2030Baby Boomers

Gen X

Millennials

Boomers+

Wealth in the U.S.by Generational Cohort

2025E

69%

56%

Retirees

31%

2015

44%

Pre-Retirees

$13.9T

$23.9T

U.S. Defined Contribution/IRA Assetsby Generational Cohort


Fragmented advice oriented around

standard products

Outcome-Oriented Advice Holistic Financial Services Offering

Customized Individual Advice

Less variable outcomes against personal goals

Individualized attention delivered as a service

Advice across investments, protection, liquidity

More variable performance against benchmarks

Standardized advice delivered around products

73% of investors believe that achieving outcomes

is the most important factor

Sources: Casey Quirk 2017 MMI Study, Yale School of Management International Center for Finance Stock Market Confidence Indices, Statista

Clie

nt D

eman

ds

Additional data: DemandCustomized, outcome-oriented advice needs

81% of investors who prefer holistic financial advice that considers all

stages of life

43% of retail investors believe their advisors

effectively protect their portfolios from losses

Curr

ent S

ervi

ce

Mod

el

72% of financial advisors plan to increase their

focus on financial outcomes

52% of advisors believe holistic financial planning

is the most important outcome for investors

Advisors only spend an average of 3 hours on a customized portfolio per

year

1 2 3

U.S. Individual Investor Preferences


Number of U.S. Advisor Investment Decisionmakers

Source: Casey Quirk Advisor Database, Casey Quirk Global Demand Model, Cerulli

Additional data: DemandConsolidating intermediaries

27%

12%

27%

11%

11%

9%

3%

$3.1T

-$1.0T

-$0.9T

2018 U.S. AUMActive, By Channel, %

Private Bank

Subadvisory

Brokerage Home OfficeProfessional

Buyers

Legacy Retail

Legacy Institutional

Outsourced CIOCustomized 401(k)

Influence of New Professional Buyers

2015

31K

Teaming

170K

Exiting

22K

15K

Outsourcing

102K

2021

5 Year U.S. Net New FlowsActive, 2019-2023E, $T


Sources: Casey Quirk/McLagan Performance Intelligence, Casey Quirk research

-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%

‘18‘11‘05 ‘15‘07 ‘17‘09 ‘13 2021E

Fina

ncia

l Cris

is

-4.9%

-5.7%

-5.2%

-4.4%

-6.6%

By A

sset

Cla

ss

Active Fixed

Income

Active Equity

By Asset Class & Channel

Inst’l

Passive

Retail

2015 - 2017Annualized

By C

hann

el

Pass

ive

-6.5%

-4.5%

-8.0%

-2.7%

-3.1%

2017 – 2018 Annualized

Additional data: DemandFee sensitivity and lower organic growth

Change in Global Effective Fees Global (ex-China) Industry Organic GrowthNet flows as % of AUM


*Consistent outperformance defined as consecutive periods of 5-year trailing positive excess returns net of fees from 2014-2018Sources: Morningstar, eVestment, Casey Quirk analysis

Additional data: SupplyOversupply: quality

0% 10% 20% 30% 40% 50% 60% 70%

20.7%

64.1%0-25%

3.4%75-100%

25-50%

7.6%50-75%

37%41%

All Periods2009-2013 2014-2018

55%51%

67%

23%

Strategies AUM

ConsistentOutperformers

Asset Managers by % of AUMin Consistently Outperforming* Strategies, 2018

Investment Strategies With Consistent Outperformance, 2009-18


Number of Global Asset Managers > $20B AUM

% Global Asset Managers with Positive Net Inflows

2004 2006 20122008 2010 2014 2016 20180.0%

5.0%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

Sources: Strategic Insight, eVestment, Casey Quirk analysis

117

95

136

103

0

20

40

60

80

100

120

140

Fixed IncomeEquity

+16.2%

+8.4%

2015 2018

Additional data: SupplyOversupply: competitors


Additional data: SupplyChanging capital markets

201820172016 2019

4,500

5,500

7,500

0

6,500

3,671

2006`76 `86

7,322

`96 2016

40

120

0

100

80

60

20

73K79K

85K

100K

Number of Listed U.S. Companies

Number of U.S. Registered Investment Products in thousands

Sources: National Bureau of Economic Research Working Paper 21181 (Doidge et al.), Credit Suisse, Morningstar, eVestment


Additional data: SupplyPassive investing

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

64%

4%

1%1%2%

10%

5%8%

17%

2007-2012 Flows

6%1%2% 3%

22%

57%

2013-2018 Flows

Unconstrained Fixed

Emerging Markets Debt Global Fixed IncomeHigh Yield

Target-date/multi-assetSmid Cap Equity

Developed Core/Core+Large Cap Equity

Passive Net New Inflows Worldwide$billions

Sources: Morningstar, eVestment


Additional data: SupplyRising fixed costs

31% 37

%

45%

46%

5%

-5%

0%

10%

15%

’15-’16’13-’14 ’14-’15 ’16-’17 ’17-’18RevenueC&B Non-C&B

31%37%

45%

46%

36%

Year-over-Year Changes in Costs and Revenues: U.S. and European Asset Managers

Notes: C&B=compensation and benefits (variables costs). Source: Casey Quirk/McLagan Performance Intelligence


Additional data: SupplyPressure on profits

32%

35%32%

30%

34%32%

20%

30%

10%

15%

25%

40%

35%

45%

20182013 2014 2015 2016 2017

Operating Margins: U.S. and European Asset Managers

Sources: Casey Quirk/McLagan Performance Intelligence, Standard & Poor’s


Additional data: ImpactHolistic advice as value proposition

Intermediary

Administrative

Asset Management

Advice24%

28%

20%

21%

2013

32%

24%

28%

23%

2015

35%

23%

22%

21%

2021E

1.65%

1.47%

1.35% Expected Future Fee Shifts

Advisors look to maintain their economics, but will be challenged due to oversupply of inefficient

advisors and lower yields

Technology and proprietary differentiators are critical to the intermediaries’ survival

Distribution and marketing will be significantly compressed by efficiency gains

Managers will need to have a strategic response to passive and cost conscious options

Investor Fee Budgets in % AUM

Notes: Administrative fees includes transfer Agent, administrative fees, and 12(b)-1Sources: Casey Quirk Advisor Database, Casey Quirk Global Demand Model, Investment News, Casey Quirk Analysis


Additional data: ImpactLess registered product

7%

2014

35%

Variable Annuities

29%

6%

10%

7%

Advisor-Sold DC

Mutual Funds

10%

31%

8%

30%

11%

14,984

7%

2018

IndividualSecurities

ETFsSMAs

13,075

4.4%

0.1%

15.8%

3.2%

-2.1%

7.4%

U.S. Advisor-Sold Investment Vehicles1

AUM in $billions

1Advisor-sold products only. Excludes alternative vehicles, insurance products, structured notes, REITs, 529 plans, commodities and other vehicles. Sources: Morningstar, ICI, Cerulli, Ignites Research, Casey Quirk Global Demand Model, Casey Quirk Defined Contribution Model, Casey Quirk Retail Demand Model, Casey Quirk analysis

CAGR


Additional data: ImpactDifferent pricing methods

0%1%2%3%4%5%6%7%8%

20172014 2015 2016

75th

50th

25th

No Usage

Considering

Implemented

65%

18%

12%

Performance Fees as % of Net Revenues:U.S. and European Asset Managers

U.S., European Asset Managers Using Performance Fees, 2018

Sources: Casey Quirk Performance Intelligence Survey, Casey Quirk 2018 Strategy Officer Study and Casey Quirk Analysis

Percentile key


Additional data: ImpactMore direct-to-consumer distribution

0

1

2

3

4

5

Digital Engagement

Personalized Advice

Capabilities

Human Touchpoints

Leve

l of D

eman

d

Real-Time Research

Millennials Generation X Boomers +Baby Boomers

U.S. Individual Investor PreferencesBy demographic; 5 = highest preference

Notes: Millennials (born between 1982-2002), Generation X (1961-81), Baby Boomers (before 1960), Boomers + (before 1960, net worth > U.S.$250K)Source: Deloitte Center for Financial Services


Additional data: ImpactMore automation and focus on data accumulation

50%

13%

35%

38%

10%

29%

6%21%

2018 2019

Data analytics are not an input

Data analytics are a primary inputData analytics are a secondary inputData analytics are minor input

69%

54%

54%

46%

46%

23%Retooling existingskill sets

Change incentivestructures

Invest in technology

Hire additionalsales professionals

Refocus efforts onhigh growth segments

Enhancemarketing organization

Role of Data Analytics in Distribution:U.S., European Asset Managers, 2019

Most Important Goal for Organic Growth: U.S., European Asset Managers, 2019

Source: Casey Quirk Distribution Benchmarking


Sources: Casey Quirk Global Demand Model

Additional data: ImpactMore listed-unlisted investing

24%

16%

Private Market 28%

2019

13%

32%

7%

12%

13%

11%

16%

21%

7%

2024

Solutions

Hedge Funds

Equity

Fixed Income

Passive

$336

$404

$0.9T

$1.4T

$0.2T

$2.2T

-$2.0T

$2.4T

75%$51B

19%$13B

6%$4B

-

Global Asset Management Revenues2019-24E

Net New Flow, $T Revenue Growth, $TRevenue, $B


Sources: Casey Quirk Distribution Benchmarking

Additional data: ImpactActivism and social-impact investing

8%

8%

8%

46%

8%

38%

23%

38%

54%

23%

15%

8%

31%

38%

54%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0%

Market Leading Competitive Adequate Lagging

Integration of ESG in investment

process

Sales / investment team articulation of ESG integration

Firm’s articulation of ESG as part of

brand / value proposition

Brand recognition as leading ESG

provider

ESG Competitive Positioning% of Participants, self-reported

Key ESG InitiativesLess Differentiated

More Differentiated

ESG Investing Progress: U.S. and European Managers2019

www.caseyquirk.com

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remarks and discussion - sec · 2020-01-09 · asset management advisory committee. january 14,...

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