Expect fees to be cut in 2021 as competition heats up

Trend for lower fees will intensify in the coming months according to asset management executives

Expect fees to be cut in 2021 as competition heats up
Steve Randall

The asset management industry has been facing increased pressure to cut fees for some time, but 2021 will take this to a new level.

Senior industry executives expect expense ratios or fees to be reduced amid increasing competition in the next 12 months according to a global survey from Brown Brothers Harriman.

The poll of a wide spectrum of industry C-suite leaders – overseeing a collective US$18 trillion in assets under management (AUM) and more than 115,000 employees globally – also reveals how asset management is adapting to the pandemic-driven disruption to the industry.

There is a split between leaders in the largest and smaller firms. Those in charge of firms with less than $50 billion AUM are most concerned about the economy in 2021. For those at larger firms (more than $500 billion AUM) it is staff productivity and cybersecurity that are making them most anxious.

The crisis of 2020 has prompted most (75%) of respondents to change how they allocate capital, 77% said their firms have seamlessly shifted to remote working, with real estate seen as a key way to cut costs going forward.

More than one third of respondents said they are evaluating new strategies such as ETFs and Alternatives to expand their product suite. Some will boost performance by optimizing securities lending, FX, and operational improvements.

Other findings
Among other key highlights of the report:

  • Managers are targeting data/IT and the middle office for efficiency improvements. 57% of asset managers are looking to improve their data abilities and 38% identified the middle office as an area to drive efficiency.
  • Many are considering outsourcing operational functions. 30% of global asset managers are more likely to consider outsourcing functions than a year ago.
  • Investor interactions are way up as a result of the crisis. 72% of global asset managers have increased the cadence of client engagement since the start of the crisis, albeit through new channels.
  • Remote work has propelled the industry into modern era. While 48% believe half their employees will be able to return to the office in Q2 2021, flexible work arrangements are here to stay.