How are firms planning to contain costs?
Given the expected pressures on fee income, which is driving the revenue line for asset managers, the survey endeavored to find out how firms were planning to contain costs and the areas where they nonetheless expected to increase their spending. On balance, as noted earlier, they expect costs to rise moderately faster than fee income to 2025 (a 10% increase in costs versus 8% in income).
Over the shorter term, respondents identified their top three cost increases and cost savings. The largest cost increase is expected to come from Compliance (cited by almost 20%). While that is hardly surprising given the developing regulatory environment, stretching from MiFID II through to SMCR in the UK and similar initiatives elsewhere, respondents are also positioning themselves for the greater use of New Technology and new information sources, with large increases expected in new technology investment and the use of Big Data.
The areas of expected cost reduction were more startling, with anticipated cuts to the heart of the traditional asset management business – Portfolio Management and Dealing and Execution – perhaps reflecting the rise of the robo-advisor and more automated dealing and trading infrastructure.
