Margin pressure on European asset management firms is not necessarily resulting in cost-cutting, but rather a focus on more profitable clients, according to research conducted for the latest edition of The Cerulli Edge – Global Edition, published by the research and consultancy firm.
There is also a trend towards focusing on higher margin asset classes, the research suggests.
Barbara Wall, Europe managing director, said: “When we asked what they will be doing to protect profitability through the reminder of 2017 and next year, four in five of the managers Cerulli surveyed told us that they will be paying greater attention to client segments with higher profit margins.”
Some two-thirds of respondents to the poll underlying the findings, said they plan to focus on asset classes such as alternatives to boost margins, with 53% looking to reduce operational costs to protect margins.
Regulation is one key driver of margin squeeze, the research indicates, with focus on fees manager charge for distribution, advice and management. Meanwhile, the popularity of low cost passive investing is being felt by traditionally higher cost business models. Means to lower industry costs include more use of data analytics and artificial intelligence. Distribution, research and product launches could be improved from an efficiency point of view, while innovation could also help boost profits, Cerulli suggests.
But Wall warns: “When considering whether to prioritise the protection of existing revenue streams over the exploration of potential new sources of revenue, firms should remember that keeping or enhancing what they already have is always going to be cheaper and easier than hunting down or creating something new.”
That said, Cerulli also believes that active management firms in Europe will look to offer passive investments, to at least be seen to be in the market with a “complete offering”; but many firms will still be guided by the ability to outperform using active strategies, which can attract bigger fees.
“Active firms that resist the temptation to join the passive revolution may yet be vindicated,” Cerulli’s research suggests.