Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 82

How megatrends are reshaping investment management

What will the investment management industry look like in 2030? Nobody can predict the future with certainty, but it will be very different to today. Specifically, what the investors of the future will look like, how their needs, requirements and behaviours will evolve and what this could mean for investment managers. As you read this paper, we ask you to consider which trends will impact you most.

The world is changing rapidly, driven by a number of deep-rooted forces we call megatrends. We have been tracking these trends and considering the potential implications for the industry.

Seismic shifts in demographics, technology, the environment, social values and behaviours are set to re-draw the corporate landscape. Investment management will not escape this overhaul.

KPMG Picture1 031014

KPMG Picture1 031014

There is a significant prize up for grabs. Not only is the industry likely to be considerably larger in 15 years’ time, but it will have a more important role to play in clients’ lives and society in general.

Clients will be more diverse

The clients of tomorrow are likely to be different from the clients of today. The demographic drivers are clear. There will be more older people living for longer. By 2030, 13% of the global population will be over 65, compared to 8% today. But other trends such as the changing role of women, growth of the middle class, increasing mobility and growing economic influence of the developing world will help to make gender, culture and religion more important drivers of change.

Individuals will need to take greater responsibility for their retirement planning. No one else will do it for them given the decline of state provision in many counties and continued pressure on the traditional annuity models. An increasing number of people will simply run out of money in retirement. This presents an opportunity for the industry to capture clients earlier and build a cradle-to-grave relationship, rather than only focus on attracting clients when they have assets to invest. The net result is likely to be a much broader, younger, more diverse, multi-generational and multi-cultural client base.

However, each client segment will have different requirements, needs and expectations. Herein lies the challenge for an industry which to date has largely served a relatively narrow demographic.

Expectations will be different

We believe future generations will be more engaged in managing their savings and planning their retirements. Investors will seek greater certainty and personalised solutions which can transition across life-stages. The growing relevance of online communities and social networks is creating a new ‘trust paradigm’, with people increasingly looking to ‘people like me’ rather than professionals for advice.

Being able to provide timely, relevant, engaging and personalised information and education about the choices available to an investor will become as important – if not more so – than the underlying product.

The increasing capability of personal technologies will drive demand and expectations for all this to be delivered seamlessly through a multiplicity of devices at any given point in time. The incredibly rapid rate at which new technology is adopted is a feature of the modern age and the pace of development will only increase. Some 75% of the world now has access to a mobile phone and by 2030, 50% of the world will have access to the internet. This will drive huge change in behaviours.

Institutional investors will be calling for greater information, education, flexibility, solutions and certainty. We are already seeing an increase in institutional demand for tailored and multi-faceted delivery and reporting.

What does this mean for industry?

We believe that a new investment management value chain will emerge. The days of the ‘product-push’ model and being able to attract flows solely on the premise of delivering a decent return are in our view numbered. Traditional products will increasingly become components of more flexible solutions. We will see a greater demand for outcome certainty, and investment niches will become more mainstream.

We also believe that investment managers can play a much broader, deeper role in clients’ lives and the industry value chain. This will mean understanding clients far better than today and creating a new value proposition based around education, outcomes (not just returns), flexibility and personalised solutions. Investment return will continue to be important but we believe that the pendulum will swing from manufacturing to distribution.

Investment managers can play a more important role in the value chain. This could be through a greater role in asset allocation, development of a broader range of solutions, helping intermediaries better understand and educate end-investors or taking a lead in aggregating an investor’s total financial position.

The technology platform and supporting infrastructure must also provide the ability to capture, harvest and leverage data. The industry has struggled to take advantage of the client information available to it, to deliver and use its insights into its clients.

The new business models will demand people have new skill sets while technology could continue to replace many traditional roles. The industry will need to adjust to acquire talent from different pools and employ a more diverse multi-generational staff.

The potential for more disruption

There are emerging models leveraging a combination of technology, data and social networks to bring fresh propositions to market which play to the evolving megatrends. One of the key challenges many new entrants have is creating a brand and building an appropriate profile and distribution footprint. A trusted brand which resonates and appeals to a more diverse client demographic and a new generation of investors with widely different values and behaviours will be increasingly crucial to build scale. This provides opportunities for non-traditional new entrants.

It may seem a little clichéd but could the likes of Amazon, Google and Apple be the next powerhouses in investment management? Instinctively they have the attributes and capabilities: brand ubiquity which is increasingly trusted by younger generations; propositions that engage and are relevant; business models which put them at the centre of extensive networks designed to understand needs, anticipate requirements, aggregate information, make clients lives easier, solve problems and change behaviours; enviable distribution footprints and huge client bases spread across all demographic groupings.

This is combined with an ability to capture and leverage data to really understand clients and an infrastructure which can deliver personalised and tailored services.

We can also see an opportunity for even more radical propositions to shake up the industry, particularly in response to challenges such as the pension time-bomb. With investors likely to increasingly value outcomes and certainty over returns and look for opportunities to lock-down value earlier, the focus could shift to products and services rather than cash savings.

Retirement planning should be about securing lifestyle expectations rather than simply cash accumulation. On that basis, options to secure holidays, cars and healthcare during retirement may be as attractive as putting aside cash. We believe such a paradigm shift could be feasible.

Conclusion

We are not attempting to predict the future. We are simply looking to better understand how megatrends could impact the industry. The spectrum of outcomes is broad and there is certainly no ‘one-size-fits-all’ response.

Some firms may decide that remaining true to models that have served them well for decades is actually the right strategy. Maybe they’ll be right – but this has to be a conscious decision, not the result of inactivity or apathy.

However, we firmly believe that the megatrends will drive fundamental changes in what investors of the future need, want and expect. In our view, simply appreciating that this shift is taking place and pursuing a strategy of incremental change will for many not be sufficient.

KPMG Picture2 031014

Jacinta Munro is Partner, Wealth Advisory and John Teer is National Leader, Wealth Management at KPMG.

This is a summarised version of the original KPMG International Report. For both the Full Report and the Executive Summary, see kpmg.com/investinginthefuture.

 


 

Leave a Comment:

     

RELATED ARTICLES

Why technology stocks are good for the future

Future Fund: 5 megatrends are changing everything

My 10 biggest investment management lessons

banner

Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates

Strategy

$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reason to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies will benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Strategy

Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated investors' can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.