EY Wealth and Asset Management Outlook for 2018

14 December 2017

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  • Following a challenging year, managers are optimistic about 2018
  • Balance of power shifts to developing world and opportune UK managers could benefit – new study here
  • Asset managers embrace technology, but human touch still vital

Gill Lofts, UK Head of Wealth and Asset Management at EY, comments: “2017 proved to be an intensely challenging year for asset managers. With MiFID II now tangibly looming and the continued growth of exchange traded funds (ETF) and passive managers, the last few weeks of the year and into the next won’t provide let up. In addition, managers are also grappling with the uncertainties of Brexit, the steady march of technology and the rise of robo-advisers, and the FCA spotlight on performance fees.

“While all of these issues are important, the UK asset management industry also stands at the cusp of some major global structural changes as, for the first time, economic power is shifting in favour of developing nations. Those that can be fleet-of-foot in responding to this critical change stand to gain a serious edge on their competitors, so 2018 could be a year of reckoning in more ways than one.”

Balance of power shifts to developing world

Lofts continues: “EY revisited the strategy created for the Treasury back in 2013, which examined priority targets for UK asset management investment, and what we found was that the world has changed significantly. At the time, Asia and China were starting to take on more importance in terms of areas for investment, but in 2017 the world shifted on its axis as the bulk of global savings have moved in favour of developing countries for the first time. Our updated study puts China, Japan, Australia, Republic of Korea and the United States of America right at the top of the priority list going forward.

“While Brexit is certainly a disruptor, it leaves the UK industry with an opportunity to focus on the most attractive jurisdictions while also recognising that global wealth trends have moved on. Next year could see the start of a major re-alignment of investment strategies which will have lasting implications.” 

Asset managers embrace technology, but human touch still vital

“Two years ago, the headlines around technology were all concerned about Artificial Intelligence (AI) replacing humans, with speculation that this trend could prompt job losses across the industry. This simply hasn’t happened. Instead, relationship managers remain vitally important in keeping their clients happy, but what technology has enabled is a far deeper understanding of clients and their needs. We see this trend only increasing over time as more fund managers use technology for real-time analysis of large amounts of data to enable them to give more tailored advice to clients.

“In 2018 we also predict that technology will become more mainstream in the area of smart or self-executing contracts as well as compliance where technology will reduce costs and improve efficiencies.

“The asset management industry is also embracing technology more widely in terms of working with FinTechs. We are seeing large asset managers lower the barriers to entry for usage of FinTechs in a way that used to be stopped by procurement, which is further driving innovation.”

Following a challenging year, hedge funds are optimistic about 2018

James Beszant, EY Hedge Funds Co-Leader, comments: “Hedge funds will be questioning if two is a trend as they look to the year ahead, given that 2017 continued the tricky market conditions of the year before. Despite this, there remained plenty of examples of good performance, and assets continued to be allocated to strategies and managers that offered a clear investment proposition and good medium-term track record. There remains a huge opportunity for managers to offer a proposition to investors that is differentiated from more traditional strategies, which is keeping levels of optimism high for 2018 and beyond.

“In particular, 2018 looks set to be a year of continued investment in innovation, leading to new strategies, vehicles and bespoke products. Managers are investing heavily to enhance the use of data and robotics, and are embracing automation to improve their investment processes.”

But Brexit brings concerns about attracting top talent

“The majority of hedge funds do not expect Brexit to be as disruptive to their business models and investment strategies as many other sectors. However some Hedge Fund managers  have expressed concerns about their continued ability to attract the best possible talent from across the EU post-Brexit. This is an issue that many businesses will be closely watching.”