Remarks and Discussion - SEC · 2020-01-09 · Asset Management Advisory Committee. January 14,...
Transcript of Remarks and Discussion - SEC · 2020-01-09 · Asset Management Advisory Committee. January 14,...
Remarks and DiscussionU.S. Securities and Exchange CommissionAsset Management Advisory Committee
January 14, 2020
Ben Phillips, Principal, Deloitte Consulting LLP
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The strongest shifts seen in 40 years are transforming U.S. asset management
1 Demand 2 Supply 3 Impact
• Demographic changes
• Customized, outcome-oriented advice needs
• Consolidating intermediaries
• Fee sensitivity
• Lower organic growth
• Vendor oversupply
• New capital markets
• Passive investing
• Rising fixed costs
• Margin pressure
• Holistic advice as value proposition
• Less registered product
• Different pricing
• More direct-to-consumer sales
• More automation
• Investor data as a core asset
• Activism and social-impact investing
• More public-private portfolios
Changing buyers + maturing economics = transition from product to service industry
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Demand overviewBuyers are becoming younger, older, more outcome-oriented and fee-sensitive
Demographic changes
• Baby boomers shift from accumulation to income• Debt-heavy, risk-averse millennials favor cash flow1
Customized, outcome-oriented advice needs
• Investor emphasis on objectives, not only excess return• Individuals seek advice across investment, tax, protection• Focus on client experience, trust, personalization
2
Consolidating intermediaries
• Fiduciary risk, tech needs favor scale advice providers• Exodus of advice talent spurs consolidation• New professional buying dynamics emerging industrywide
3
Fee sensitivity• QE’s smaller risk-free rates highlight management fees• Fee budgets favor providing income rather than return4
Lower organic growth
• Retirement funds in decumulation mode• Fewer new asset pools to tap for professional management• Without new money, asset managers must compete to grow
5
Additional data
5
6
7
8, 15
8
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Supply overviewTighter client opportunities are fueling more rivalry among asset managers
Oversupply• Investment quality accrues to subset of providers• Only a minority of asset managers are growing organically1
Changing capital markets
• Fewer publicly traded companies frustrates stockpickers• Private markets perceived as higher-yield in low-rate world2
Passive investing
• Outcome-oriented advisors emphasize allocation skills• Fee pressure favors exposures, not stock selection3
Rising fixed costs
• Tech for customization, client experience boosts expenses• Poor leverage across wide range of subscale business lines4
Pressure on profits
• Lower growth, higher cost pressuring margin• Widening range between winners and losers5
Additional data
9,10
11
12
13
14
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Impact overviewCombined, demand & supply catalysts are reshaping U.S. asset management
Advice as the value proposition
• Asset managers extend intellectual property beyond portfolios• More focus on additional tools, services, models and overlays1
Less registered product
• Customization demands, tax concerns disadvantage pooled funds• Distributed-ledger technology aids customization initiatives 2
Different pricing methods
• Outcome-oriented advisors emphasize allocation skills• Fee pressure favors exposures, not stock selection
3
More direct-to-consumer distribution
• Seeking more client data, access, asset managers offer advice• Technology blurs lines between asset and wealth managers
4
15
16
17
18
More automation• Cost concerns, alternative data mechanize some investments• Advice provision relies more on AI and algorithms 5
Focus on data accumulation
• Client data plays a strategic role in shaping advice offers• Increasing use of economic models trading data for advice6
More listed-unlisted investing
• Wider individual investor exposure to private equity• Innovations around liquidity and unitization fuel usage
7
Activism and social-impact investing
• Active investors seeking differentiation wield more voting power• ESG demand from younger investors reshapes investment processes8
19
19
20
21
Additional data
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Notes: Millennials (born between 1982-2002), Generation X (1961-81), Baby Boomers (before 1960), Boomers + (before 1960, net worth > U.S.$250K); Retirees are age 65+Sources: Deloitte Center for Financial Services, Investment Company Institute, Vanguard (“How America Saves”)
Additional data: DemandDemographic changes
33%
9%
16%
14%31%
50% 45%
4%
2015 2030Baby Boomers
Gen X
Millennials
Boomers+
Wealth in the U.S.by Generational Cohort
2025E
69%
56%
Retirees
31%
2015
44%
Pre-Retirees
$13.9T
$23.9T
U.S. Defined Contribution/IRA Assetsby Generational Cohort
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Fragmented advice oriented around
standard products
Outcome-Oriented Advice Holistic Financial Services Offering
Customized Individual Advice
Less variable outcomes against personal goals
Individualized attention delivered as a service
Advice across investments, protection, liquidity
More variable performance against benchmarks
Standardized advice delivered around products
73% of investors believe that achieving outcomes
is the most important factor
Sources: Casey Quirk 2017 MMI Study, Yale School of Management International Center for Finance Stock Market Confidence Indices, Statista
Clie
nt D
eman
ds
Additional data: DemandCustomized, outcome-oriented advice needs
81% of investors who prefer holistic financial advice that considers all
stages of life
43% of retail investors believe their advisors
effectively protect their portfolios from losses
Curr
ent S
ervi
ce
Mod
el
72% of financial advisors plan to increase their
focus on financial outcomes
52% of advisors believe holistic financial planning
is the most important outcome for investors
Advisors only spend an average of 3 hours on a customized portfolio per
year
1 2 3
U.S. Individual Investor Preferences
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Number of U.S. Advisor Investment Decisionmakers
Source: Casey Quirk Advisor Database, Casey Quirk Global Demand Model, Cerulli
Additional data: DemandConsolidating intermediaries
27%
12%
27%
11%
11%
9%
3%
$3.1T
-$1.0T
-$0.9T
2018 U.S. AUMActive, By Channel, %
Private Bank
Subadvisory
Brokerage Home OfficeProfessional
Buyers
Legacy Retail
Legacy Institutional
Outsourced CIOCustomized 401(k)
Influence of New Professional Buyers
2015
31K
Teaming
170K
Exiting
22K
15K
Outsourcing
102K
2021
5 Year U.S. Net New FlowsActive, 2019-2023E, $T
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Sources: Casey Quirk/McLagan Performance Intelligence, Casey Quirk research
-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%
‘18‘11‘05 ‘15‘07 ‘17‘09 ‘13 2021E
Fina
ncia
l Cris
is
-4.9%
-5.7%
-5.2%
-4.4%
-6.6%
By A
sset
Cla
ss
Active Fixed
Income
Active Equity
By Asset Class & Channel
Inst’l
Passive
Retail
2015 - 2017Annualized
By C
hann
el
Pass
ive
-6.5%
-4.5%
-8.0%
-2.7%
-3.1%
2017 – 2018 Annualized
Additional data: DemandFee sensitivity and lower organic growth
Change in Global Effective Fees Global (ex-China) Industry Organic GrowthNet flows as % of AUM
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*Consistent outperformance defined as consecutive periods of 5-year trailing positive excess returns net of fees from 2014-2018Sources: Morningstar, eVestment, Casey Quirk analysis
Additional data: SupplyOversupply: quality
0% 10% 20% 30% 40% 50% 60% 70%
20.7%
64.1%0-25%
3.4%75-100%
25-50%
7.6%50-75%
37%41%
All Periods2009-2013 2014-2018
55%51%
67%
23%
Strategies AUM
ConsistentOutperformers
Asset Managers by % of AUMin Consistently Outperforming* Strategies, 2018
Investment Strategies With Consistent Outperformance, 2009-18
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Number of Global Asset Managers > $20B AUM
% Global Asset Managers with Positive Net Inflows
2004 2006 20122008 2010 2014 2016 20180.0%
5.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
Sources: Strategic Insight, eVestment, Casey Quirk analysis
117
95
136
103
0
20
40
60
80
100
120
140
Fixed IncomeEquity
+16.2%
+8.4%
2015 2018
Additional data: SupplyOversupply: competitors
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Additional data: SupplyChanging capital markets
201820172016 2019
4,500
5,500
7,500
0
6,500
3,671
2006`76 `86
7,322
`96 2016
40
120
0
100
80
60
20
73K79K
85K
100K
Number of Listed U.S. Companies
Number of U.S. Registered Investment Products in thousands
Sources: National Bureau of Economic Research Working Paper 21181 (Doidge et al.), Credit Suisse, Morningstar, eVestment
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Additional data: SupplyPassive investing
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
64%
4%
1%1%2%
10%
5%8%
17%
2007-2012 Flows
6%1%2% 3%
22%
57%
2013-2018 Flows
Unconstrained Fixed
Emerging Markets Debt Global Fixed IncomeHigh Yield
Target-date/multi-assetSmid Cap Equity
Developed Core/Core+Large Cap Equity
Passive Net New Inflows Worldwide$billions
Sources: Morningstar, eVestment
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Additional data: SupplyRising fixed costs
31% 37
%
45%
46%
5%
-5%
0%
10%
15%
’15-’16’13-’14 ’14-’15 ’16-’17 ’17-’18RevenueC&B Non-C&B
31%37%
45%
46%
36%
Year-over-Year Changes in Costs and Revenues: U.S. and European Asset Managers
Notes: C&B=compensation and benefits (variables costs). Source: Casey Quirk/McLagan Performance Intelligence
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Additional data: SupplyPressure on profits
32%
35%32%
30%
34%32%
20%
30%
10%
15%
25%
40%
35%
45%
20182013 2014 2015 2016 2017
Operating Margins: U.S. and European Asset Managers
Sources: Casey Quirk/McLagan Performance Intelligence, Standard & Poor’s
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Additional data: ImpactHolistic advice as value proposition
Intermediary
Administrative
Asset Management
Advice24%
28%
20%
21%
2013
32%
24%
28%
23%
2015
35%
23%
22%
21%
2021E
1.65%
1.47%
1.35% Expected Future Fee Shifts
Advisors look to maintain their economics, but will be challenged due to oversupply of inefficient
advisors and lower yields
Technology and proprietary differentiators are critical to the intermediaries’ survival
Distribution and marketing will be significantly compressed by efficiency gains
Managers will need to have a strategic response to passive and cost conscious options
Investor Fee Budgets in % AUM
Notes: Administrative fees includes transfer Agent, administrative fees, and 12(b)-1Sources: Casey Quirk Advisor Database, Casey Quirk Global Demand Model, Investment News, Casey Quirk Analysis
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Additional data: ImpactLess registered product
7%
2014
35%
Variable Annuities
29%
6%
10%
7%
Advisor-Sold DC
Mutual Funds
10%
31%
8%
30%
11%
14,984
7%
2018
IndividualSecurities
ETFsSMAs
13,075
4.4%
0.1%
15.8%
3.2%
-2.1%
7.4%
U.S. Advisor-Sold Investment Vehicles1
AUM in $billions
1Advisor-sold products only. Excludes alternative vehicles, insurance products, structured notes, REITs, 529 plans, commodities and other vehicles. Sources: Morningstar, ICI, Cerulli, Ignites Research, Casey Quirk Global Demand Model, Casey Quirk Defined Contribution Model, Casey Quirk Retail Demand Model, Casey Quirk analysis
CAGR
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Additional data: ImpactDifferent pricing methods
0%1%2%3%4%5%6%7%8%
20172014 2015 2016
75th
50th
25th
No Usage
Considering
Implemented
65%
18%
12%
Performance Fees as % of Net Revenues:U.S. and European Asset Managers
U.S., European Asset Managers Using Performance Fees, 2018
Sources: Casey Quirk Performance Intelligence Survey, Casey Quirk 2018 Strategy Officer Study and Casey Quirk Analysis
Percentile key
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Additional data: ImpactMore direct-to-consumer distribution
0
1
2
3
4
5
Digital Engagement
Personalized Advice
Capabilities
Human Touchpoints
Leve
l of D
eman
d
Real-Time Research
Millennials Generation X Boomers +Baby Boomers
U.S. Individual Investor PreferencesBy demographic; 5 = highest preference
Notes: Millennials (born between 1982-2002), Generation X (1961-81), Baby Boomers (before 1960), Boomers + (before 1960, net worth > U.S.$250K)Source: Deloitte Center for Financial Services
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Additional data: ImpactMore automation and focus on data accumulation
50%
13%
35%
38%
10%
29%
6%21%
2018 2019
Data analytics are not an input
Data analytics are a primary inputData analytics are a secondary inputData analytics are minor input
69%
54%
54%
46%
46%
23%Retooling existingskill sets
Change incentivestructures
Invest in technology
Hire additionalsales professionals
Refocus efforts onhigh growth segments
Enhancemarketing organization
Role of Data Analytics in Distribution:U.S., European Asset Managers, 2019
Most Important Goal for Organic Growth: U.S., European Asset Managers, 2019
Source: Casey Quirk Distribution Benchmarking
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Sources: Casey Quirk Global Demand Model
Additional data: ImpactMore listed-unlisted investing
24%
16%
Private Market 28%
2019
13%
32%
7%
12%
13%
11%
16%
21%
7%
2024
Solutions
Hedge Funds
Equity
Fixed Income
Passive
$336
$404
$0.9T
$1.4T
$0.2T
$2.2T
-$2.0T
$2.4T
75%$51B
19%$13B
6%$4B
-
Global Asset Management Revenues2019-24E
Net New Flow, $T Revenue Growth, $TRevenue, $B
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Sources: Casey Quirk Distribution Benchmarking
Additional data: ImpactActivism and social-impact investing
8%
8%
8%
46%
8%
38%
23%
38%
54%
23%
15%
8%
31%
38%
54%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0%
Market Leading Competitive Adequate Lagging
Integration of ESG in investment
process
Sales / investment team articulation of ESG integration
Firm’s articulation of ESG as part of
brand / value proposition
Brand recognition as leading ESG
provider
ESG Competitive Positioning% of Participants, self-reported
Key ESG InitiativesLess Differentiated
More Differentiated
ESG Investing Progress: U.S. and European Managers2019
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