EY ITEM Club

Outlook for financial services
Winter 2015-16

Wealth & Asset Management forecast

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“Despite the recent market correction, the EY ITEM Club is projecting that total AUMs will continue to rise steadily from £966b this year to £1,177b in 2019. However, this doesn’t mean UK wealth and asset management firms can rest on their laurels. Almost two years on from the announcement of seismic changes in UK pensions regulation, the retirement industry – which increasingly includes asset managers – has yet to respond with the next generation of retirement and post–retirement products and services. The good news is that technology may help to break the logjam.”
 
Gillian Lofts
Partner, UK Wealth & Asset Management Leader
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EY - Gillian Lofts
Gillian Lofts
Partner,
UK Wealth & Asset
Management
Leader

Despite the recent market correction, the EY ITEM Club is projecting that total AUMs will continue to rise steadily from £966b this year to £1,177b in 2019. However, this doesn’t mean UK wealth and asset management firms can rest on their laurels. Almost two years on from the announcement of seismic changes in UK pensions regulation, the retirement industry – which increasingly includes asset managers – has yet to respond with the next generation of retirement and post–retirement products and services. The good news is that technology may help to break the logjam. ↓ [... more]

Clients are demanding a new generation of pension offerings …

A year ago, it was understandable that the revolution in the UK’s pensions landscape hadn’t yet been mirrored by comparably dramatic changes in the related products and services. However, while developing and launching new offerings takes time and demands substantial road-testing, the continuing lack of new-style solutions is now starting to become a concern.

The supply side remains dominated by the traditional providers offering traditional products and services. And while life insurers, wealth managers and asset managers have made some progress towards defining the next generation of retirement offerings, there’s still a long way to go before they can claim to be fully meeting the growing demand from savers, investors and retirees.

For providers, the challenge is complicated by the need to fulfil two imperatives. The first is to create products and services that will provide value at retirement. The other is to ensure that they also remain suitable throughout people’s various life stages – firstly, as they save for retirement; then as they reach retirement; thirdly, as they spend 10 years-plus in semi-retirement; and finally as they retire fully.

… and it’s time for the industry to seize the opportunity

So, what’s happening? While innovation is under way, to date it has remained largely behind closed doors or focused on technology-heavy solutions such as Robo-advisors. However, principles are starting to emerge for what the new offerings will look like.

On the services front, successful offerings will need to add value at the different life stages. Education in saving and investing, and evaluating and providing true investment risk advice, should all form part of future services. We also expect to see more multi-channel, 24/7, mobile solutions coming to market.

In the products space, the shift from product to solution has slowly started to happen. The incorporation of different asset classes that offer alternative alpha and yield is becoming increasingly attractive in savings and investment propositions. And true multi-asset funds and measured exposures to PE, infrastructure and real estate will all play a bigger role in the retirement solutions of the future.

Escalating investment in digital capabilities and ecosystems

As efforts continue to deliver the next wave of product and service innovation, an increasing amount of industry activity and investment is being focused on digital solutions. These are seeing growing senior–level commitment in wealth and asset management firms, accompanied by moves to engage and collaborate with a broader array of partners across the digital ecosystem in more agile ways.

The result is that wealth and asset management firms are participating in new types of arrangements with other entities and individuals that they have not traditionally been involved with. The key focus for investment by asset managers is around alpha generation, the manufacture of new products and achieving superior performance. In contrast, the primary focus for wealth managers is around digitally-enhanced, multi-channel customer experiences.

As these investments bear fruit, we expect to see firms bring to market increasingly differentiated propositions for the accumulation, at retirement, and decumulation needs of savers and investors.

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Download Read the full Winter 2015-16 forecast 881K, February 2016

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Wealth and asset management highlights:

Following the pensions shake-up, technology will help enable the retirement industry to develop the next generation of products and services.

  • We expect AUMs in UK-focused funds to reach £1.2t by 2019, close to 60% of annual UK GDP in that year.
  • We expect to see a shift in AUMs away from bonds, the share of which is forecast to decline from 17% in 2015 to 14% in 2019 as a result of the search for yield in a continued low interest rate environment.
  • Fund of funds are forecast to have £157b under management by 2019, almost a 70% increase from 2014.
  • The number of people aged 65 and above climbed to an estimated 11.7m in 2015 and is expected to reach 12.8m by the end of the decade. This should offer more opportunities for wealth and asset managers, following the pensions shake-up.