Business not as usual: Investor expectations are changing fast. Are you up to speed?
We’ve just surveyed 750 institutional investors and 10,000 retail investors from around the world to find out what they now expect from their asset and wealth managers and whether their demands are being met. The overriding message from our new Investor Alignment Index[1] analysis is that investors expect more than most asset managers are currently offering. So where are the gaps and what are the implications for your business?
Talking to clients and investors, it’s clear that asset and wealth management (AWM) firms are facing a tough year ahead. While some will find the going hard, this is also an opportunity for the really capable firms to stand out from the pack.
The immediate challenges include the intensifying squeeze on fees, which is making old strategies and cost structures increasingly unsustainable. As the economic cycle turns and market uncertainty increases, firms can no longer rely on the cushion of buoyant growth to deliver strong returns. And while many of you will rightly say that we’ve survived these kind of challenges before, the big difference now is how far and how fast investor expectations are changing.
What really matters to investors
The survey findings set out in Asset and wealth management revolution: Investor perspectives – rethinking purpose and performance highlight the extent to which investors are thinking in new ways about how their capital is handled. They’re embracing digital technology and changing the way they interact with AWM firms. They’re scrutinising operational strengths and the risks that could stem from weaknesses. They’re more and more interested in social responsibility and other non-financial aspects of investing. And social media has given them a platform to broadcast their opinions, including dissatisfaction about firms that fail to meet expectations.
What’s also evident is the growing interdependence between these strategic and operational priorities, which calls for a joined-up front, middle and back office response. A clear case in point is environmental, social and governance (ESG) investing. It’s not just enough to build investors’ changing demands into investment strategies. The necessary client engagement, governance frameworks and supporting data and analytics also need to be in place to ensure that these expectations are fully understood and are being met.
Performance against expectations is mixed
Are asset managers keeping pace with changing investor demands? Drawing on the perspectives of the investors in our survey, our newly developed Investor Alignment Index gauges what most matters to them against their satisfaction with AWM firms’ performance across these priority areas.
Quite a lot of the findings are encouraging. AWM firms exceed investors’ expectations in risk/return and ESG, which are among the top three most important dimensions for investors globally.
However, the overall picture is mixed. For institutional investors the biggest gap between expectations and satisfaction centres on operational capabilities, reflecting underlying concerns with technology, reporting and risk management. Operational weakness opens the door to the Big Tech and fintech entrants, who might seek to partner with AWM firms or make direct plays. And as technologies such as artificial intelligence (AI) and the Internet of Things (IoT) reshape investors’ expectations, these possibilities will only increase.
For retail investors, the main concern is fees, though this is much less the case for their institutional counterparts. A possible reason is that institutional investors have stronger buying power and are therefore better able to negotiate over charges. While retail concerns might accelerate a race to the bottom on fees, improving transparency and value for money offer a more differentiated and lasting solution.
The big question for your business is of course how to close the gap between performance and expectation. I’ll be addressing this is a coming blog. More of the same isn’t going to be enough at a time when demands are evolving so fast. The answers go the heart of your purpose as an organisation and the modernised operational capabilities needed to deliver.
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[1] Drawing on responses from 750 institutional investors and 10,000 retail investors from around the world, PwC’s Investor Alignment Index compares what matters most to investors across the six key dimensions of fees, relationships, risk/return, operational strength, the macroeconomic and political environment and environmental, social and governance (ESG) investing against asset managers’ performance in these areas. Gaps in alignment between expectation and performance highlight areas in need of close attention and possible rethink.