- Focus on sustainability to ramp up in 2021, as UK looks to lead the world on green finance
- Tech driven transformation, accelerated by COVID-19, will continue to be key priority for wealth and asset managers in 2021
- Firms are well prepared for any Brexit outcome but still need final clarity on key trading questions
Gill Lofts, UK Head of Wealth and Asset Management at EY, comments:
“The last few years have been far from easy for the wealth and asset management sector but 2020 certainly threw up challenges no-one expected. While the asset management community responded well to the disruption of COVID-19 and the almost overnight move to mass remote working, there has been a lot to contend with in addition to the BAU issues the sector has been facing for years. As the sector strives for growth and innovation, the key areas of focus for 2021 will include harnessing big data and using it to find market opportunities; reducing operating costs amid the economic downturn; improving sustainability; responding to the FCA spotlight on performance fees and accountability; and ensuring success in a truly Brexited environment.”
COVID-19 has accelerated digitisation but using the right mix of new technologies will be key to long-term success
Gill continues: “We were already seeing significant tech innovation in the sector but COVID-19, and the move to a mix of virtual and hybrid working, has undoubtedly accelerated the adoption of digitisation and has led to a re-imagining of the client experience. Next year we expect to see the continued roll-out of Artificial Intelligence and implementing RPA technologies, as well as further progress in the use of cloud technologies, blockchain, big data and analytics and robo-advice. Using a mix of these different technologies and techniques will be essential for managers to maximise operational efficiencies, particularly with operating margins under pressure once again from free compression.
“There remains however, the enduring need for face-to-face advice, particularly when it comes to more complex financial matters, so we very much expect innovation will continue to develop alongside human insight.”
Spotlight will be on sustainability more than ever this coming year
Gill continues: “Looking ahead, the scale of the pandemic is likely to radically change investor perspectives on what ‘sustainable’ actually means. Asset management firms must continue to ensure decisions are made in the best interests of society and their workforce as well as the investors they serve. This means allocating capital responsibly and doing all they can internally and externally to chart a successful course through transition to a lower carbon economy.
“COVID-19 has given a real sense of what a global challenge – like climate change – looks and feels like, and this experience will likely accelerate corporate and regulatory action over the coming months. Companies’ social purpose and their treatment of employees has never been more closely – or publicly and rightly – scrutinised, and firms’ actions in 2021 will likely shape their future.
“While there has been some real progress in this area to date, there are still wide variances in how different firms are supporting climate action. The leading firms are approaching climate change strategically and seizing the opportunity to accelerate the transition to a low carbon economy, recognising the materiality of the risks and opportunities, and listening to their customers. However, even at this stage, there are some firms who are arguably too passive, and some are moving too slowly if they don’t want to be left behind.
“It isn’t easy of course – managers need to rapidly upskill on climate change in tandem with dealing with an already busy corporate agenda. Climate change is a complex and nuanced area, but firms need to make this a priority and bring in the right expertise and knowledge. We should be aiming for a point at which all savers can be confident that their money is being invested in companies that drive sustainable growth and which are future-proofed against the risks of climate change… all of course while delivering long-term capital returns.
“The Bank of England’s emphasis on supporting the transition to a carbon neutral economy and the recent Government announcements calling for the City to become a leader in green finance shows what the country’s ambition is. Clarity from Government will be key, but firms also need to step up and go beyond regulatory requirements. With the United Nations climate change conference (COP26) set for November 2021, that is the perfect time for firms to ensure they’re ready to talk about what they’re doing on this critical issue.”
Regulatory landscape still crucially important
Simon Turner, Partner, Wealth and Asset Management at EY, comments:
“In 2021 we expect continued focus from the regulators on the way firms’ are governed and their demonstration of value to the end investor. Adherence and compliance with the ongoing regulation that supports this remains key – from the SMCR, MiFID II, the FCA Market Study, and the UK Stewardship code to MDR. Despite the challenges of COVID-19, it’s vital that the industry successfully reports, complies with and implements the necessary regulatory changes.
“A tightening of some of the regulations is also expected in 2021. Further development on ESG Taxonomy is likely, with the UK set to create a UK specific taxonomy based on the EU framework. There will also be additional disclosure requirements, for example, in the context of Reg Tech standards.”
Firms are well prepared no matter what the Brexit outcome but still want clarity
Simon continues: “As of writing, we await news of whether a Brexit deal can be reached ahead of the transition period deadline on the 31st December. The industry though has shown great agility since the Referendum, coping well through uncertain market conditions, and firms are well prepared and will largely be expected to serve customers without disruption from 1 January 2021. That being said, asset managers will be keen for clarity and to see what progress can be made on the assessment of the UK’s equivalence and what can be achieved through trade deals and regulatory cooperation with key financial services hubs across the world.”
Alternative Investments continue to move into the mainstream
Tim West, UK Alternatives Leader at EY, comments: “Alternative asset classes continue to be the subject of increased focus and investment. Investors are seeking outperformance outside the listed markets, which to many look over-valued as we near the close of 2020. These increased allocations, in particular to Real Assets, will drive a greater focus on automation, ESG factors and Data to meet the operational and reporting needs of investors.”