Heathcote Investment Partners director Clayton Copplestone, agrees with the sentiment set out by PwC in its 2023 Global Asset and Wealth Management (AWM) survey. He says that by 2027, 16% of existing AWM firms may be out of the game.

The AWM industry has reaped the benefits of strong general direction for three decades, attracting a wealth of competitors. But with those directions fading, industry players must prove their value to survive. Copleston says that the era of "retailisation" has bred a new breed of value-aware consumers who won't pay for mediocrity.

Rising interest rates present another challenge. With New Zealand cash rates over 5.50% and set to climb, Copleston says term deposits are becoming the new rivals in asset management. AWM firms must prove their worth and justify their pay, marking the end of industry complacency.

Despite these challenges, the report predicts a rise in private markets revenues, accounting for half of global AWM revenues by 2027, a significant increase from 37.6% in 2020. But Copleston warns against getting lost in the product structure. What matters to consumers is a reasonable return for their risk.

The report also suggests growth in assets under management (AuM) will be driven by the Asia-Pacific region and emerging markets in Africa and the Middle East, which Copleston attributes to the global rising middle class.

Digital-first models and direct investment platforms are starting to attract a younger demographic, with individualised indexing gaining popularity among tax-optimising and ESG-conscious investors. Despite this, Copleston believes many consumers will continue to value a personal relationship with their financial advisers.

The report states that tokenisation, increasing market accessibility and simplifying fund infrastructure, are deemed the most transformative financial structures, offering consumers a broader range of financial assets.

PwC predicts that by 2027, the total expense ratio (TER) of active investment funds will decrease by 12% from 2022, to 59 basis points (bps), while the TER of passive funds will drop 9% to 13 bps. While some may see this as a "race to the bottom," Copleston expects outperforming active managers to maintain price stability, and core passive investments to drop to less than 5bps.

Finally, the report reveals that 73% of asset managers are considering strategic consolidation, a statistic Copleston agrees with. As he predicts, $1 trillion will be the new benchmark for aggregated global managers, putting additional pressure on isolated markets like New Zealand. This could lead to a rise in consolidation and the demise of many current participants unable to compete with better-resourced global counterparts.

In conclusion, the AWM industry faces an estimation. Adapt or crumble seems to be the order of the day, as players brace for a new era devoid of complacency and overflowing with innovation and strong competition.