Scenario 1: Our industry’s purpose is to help every adult to invest in capital markets for a zero or minimal fee
Long-term value to all industry stakeholders is increased by democratization of investing via the provision of financial education, access and zero-fee products to the entire adult population. This is now a necessary “licence to operate” required from asset managers.
Response to this scenario
Asset managers and national governments collaborate to create greater financial literacy. Passive products are provided at minimal or zero fees, with revenue generated from customer data insights or securities lending. Fractional ownership of assets — recorded on a public distributed ledger — removes the need for fund structures and their associated costs.
Scenario 2: Direct-to-customer (D2C) relationships are the norm, not the exception
Asset managers have sizeable D2C distribution networks. They source a large portion of their inflows directly from investors or via investment platforms. Investors’ preferred digital interfaces vary between different markets, with simplified distribution as the common theme.
Response to this scenario
Large asset managers acquire or build D2C portals to drive vertical integration. The regulatory push for greater fee transparency and clearer reporting encourages firms to pursue D2C, and platform relationships. Distributed ledger technology allows platforms to provide instant processing of fund transactions while direct-indexing will also allow mass personalisation.
Scenario 3: Every investor knows the impact of the assets they hold
Every investor — institutional and retail — has full “touch of a button” transparency into their holdings. The ability to look through to underlying assets reveals the ESG impact of every investment, along with full accountability and liability for that impact.
Response to this scenario
Advances in technology enable granular, real-time investor reporting. Universal ESG standards allow for instant comparisons. Higher taxes on profits with negative ESG impacts encourage investors to screen their investments, funnelling capital into sustainable assets.
Scenario 4: Asset managers are paid for long-term value and impact
Funds no longer charge fees for pure investment performance, making conventional benchmarks obsolete. According to the weightings and objectives, fees are based on a blend of investment performance and nonfinancial value. Calculations take place over a period of at least three to five years, with refunds for subsequent underperformance. Asset managers help build a greener, fairer and more sustainable economy by fuelling recovery via a new public-private collaboration model.
Response to this scenario
The importance of a green post-COVID-19 recovery — combined with governments’ record levels of debt — make private investment a critical enabler of sustainable recovery. Asset managers place themselves at the nexus of these new flows of capital, creating value for investors and wider society alike. Advances in taxonomies, technologies and data allow for consistent, transparent measurement of the long-term value that asset managers create and enable — assessed through the four lenses of clients, society, talent and financials.
Scenario 5: Index providers partner with “Big Tech,” such as Amazon, Apple and Alphabet, to become the largest asset managers
With the shift to passive investing, the influence of index providers has grown to such an extent that they are best placed to provide access to index investing. In contrast to asset management, the index industry has not experienced cost pressure. Since indexing is now an investment strategy with billions in assets under management (AuM), index providers have become the biggest asset managers by 2030.
Response to this scenario
The shift to passive investing increases asset managers’ delegation of investment decisions to index providers. As costs fall, direct indexing becomes widespread and index providers issue funds tracking their own indices. Tighter regulation of index providers increases investor trust, further eroding the role of asset managers.
Scenario 6: Fractional ownership removes the need for funds
The fractional ownership of assets is recorded on a public distributed ledger, removing the need for burdensome fund structures and their associated costs. Tokenization broadens access, allowing anyone to invest in previously restricted asset classes — ranging from private companies and infrastructure to property and fine art.
Response to this scenario
Technological advances allow for the fractionalization of existing securities and financial assets, and the tokenization of physical assets and legal titles. With the security and reliability of distributed ledgers proven, their efficiency, convenience and transparency cause demand for funds to plummet.
Scenario 7: What if a combination of artificial intelligence (AI) and quantum computing could augment human portfolio managers?
If computers can beat humans at chess, a combination of AI and quantum computing could augment or even replace portfolio managers, as technology can absorb, analyze and process more information than any human.AI decision-making is more transparent than its human equivalent and can conduct investment management with minimal intervention. All required data is available in a digitized format, suitable for machine learning.
Response to this scenario
Asset managers have high technological capabilities and use a combination of acquired and proprietary tools for portfolio management. Decision-making is instant, automatic and hugely scalable. Quantum computing follows AI in making the jump from lab to office.
How should CEOs prepare for these seven future scenarios?
One thing is certain: there is no single course of action that will lead to success. CEOs should plan for an unpredictable future by assessing the likelihood and the possible negative or positive impact of these seven scenarios on their business, and work backward to evaluate how they can protect, prepare and position their business now. This exercise should always start with a clear idea of each firm’s purpose in the industry of the future. Which clients will firms serve? How will they reach them? What investment solutions will they provide? How will technology support both the creation and distribution of these solutions?
Explore EYs framework for Asset Managers
You can explore the EY multitrack success strategy framework for asset managers in the graphic below. Select each track to reveal the underlying components.
