The UK’s asset management industry has seen monumental growth over the past three years alone, with reports showing its value grew from £8.8trn in 2022 to £9.1trn by the end of 2023. Now a world leader in asset management—second only to the U.S.—there’s plenty to suggest the UK has a handle on the ins and outs of the market. But with volatility driven by the likes of economic uncertainty, interest rate fluctuations, tech advancements and regulatory changes, there are still several challenges facing the asset management industry.
However, the good news is that these challenges can provide many great opportunities for businesses to leverage transformational change and growth. Here, we explore six of the biggest challenges facing the asset management industry and the scope they give firms to get ahead of their competition.
Challenge #1: Fee compression
The compression of fees is proving a big challenge for the asset and wealth management industry. This price minimisation is driven by two main forces: macro, and micro-environmental factors. The former is primarily at play for the asset management industry, and typically includes challenges like:
- Increased competition: Asset managers are lowering their fees to attract new investors and retain existing ones to match competitor strategies.
- Rise of passive investment strategies: Investors are increasingly seeking lower-cost index funds and cheaper ETF options.
- Increase in pricing transparency and fairness: Savvier investors and regulatory pressure is pushing asset managers to consider price-value outcomes.
- Heightened regulatory scrutiny: More stringent regulations are dictating the need for transparency and fairness in pricing.
There’s no doubt that fee compression is a disruptive challenge for the asset and wealth management industry. However, it also provides some undeniable opportunities for growth and improvement, particularly where your firm’s culture is concerned.
Asset managers can utilise this opportunity to create a stronger sense of corporate purpose, and a healthy culture where open communication, upskilling and reskilling, and succession planning for emerging talent are at the heart of the business.
Challenge #2: Shifts in investor preferences
We are observing a shift in investor preferences, with investors becoming more inclined to choose passive strategies, ESG-driven investments, alternative assets and private markets.
These new product classes and offerings are increasing data complexity, admin requirements, and the separation of operating models—this is particularly the case for private markets who have the added, ongoing challenge of needing to align with public markets’ operating models.
Despite this shift no doubt causing concern, the pressure firms may be feeling to compete or match these passive strategies is encouraging them to better innovate and adapt to changing client needs. This is providing many new growth opportunities to asset managers—think diversified revenue streams with new products, strategic partnerships with expert support for expansion, and personalised offerings using the latest technological innovations.
Challenge #3: Technology and AI disruption
Figures from 2024 valued the AI in asset management market at $3.4bn USD, and projections have since forecast growth at a Compound Annual Growth Rate (CAGR) of 24.2% between 2025-2034. Alongside this, the use of machine learning (ML) and blockchain are also redefining how asset management firms are working. However, older systems and fragmented data are holding back many firms from being able to implement these technologies, and proving one of the main, current asset management industry challenges.
For those staying ahead of the curve with these technologies can help streamline and enhance operational processes, as well as personalising customer offerings, supporting better decision-making and enabling greater flexibility and scalability.
Challenge #4: Market volatility and macro risks
The asset management market is being greatly impacted by uncontrollable market aspects, from economic downturn to inflation and fluctuating interest rates. This makes it increasingly difficult for asset managers to meet client expectations and investment goals, having a knock-on effect on the stability and growth of asset management firms.
Navigating these challenges requires a combination of strategic planning, innovative and advanced tools and technology, and a deep understanding of the market dynamics. Asset managers can leverage this challenge by diversifying into multi-asset portfolios and utilising enhanced real-time analytics to enable them to be agile to the seemingly rapid changes in the market.
Challenge #5: Talent and succession planning
The Covid-19 pandemic drove a significant change in the relationship between employers and employees/jobseekers. Figures have revealed that the latter now prioritise working for a company that aligns with their own values and who rank aspects of work like great employee well-being initiatives and career development opportunities higher than they rank competitive compensation. This has created fierce competition for talent. Similarly, there are pressures in the form of a skills gap which has emerged due to the rapid advancement of technology, and the ageing population who are heading towards retirement.
Certain investment types are increasing the demand for AI, ML and programming expertise. This challenge for the asset management industry has plenty of potential to bring innovation to these firms and create a healthier, happier, work culture that will not only attract new talent, but retain current talent as well. By prioritising activities like upskilling and reskilling, asset management firms can build an adaptable, highly-skilled, and motivated workforce.
Challenge #6: Private markets competition
More funds are being sent towards private markets, which in turn is driving more investors towards these investments. While this is beneficial for those investors operating in, or switching to, the private markets due to the higher returns and diversification, it’s hampering traditional investments and the private market is presenting challenges in the asset and wealth management industry, impacting everything from valuation to regulatory risk.
Asset managers can take advantage of this new shift towards private markets by diversifying their own portfolios and generating more revenue streams. Similarly, they can leverage technology like AI and blockchain to enhance and improve their operations and assessments to compete with private markets.
The asset management industry is moving quickly, and while this is great for reimagining traditional methods and giving firms differentiation points, there are still many firms yet to future-proof their operations and get ahead of the curve. But with many benefits to be felt, it’s important for asset managers to lean into the challenges faced by the asset management industry and leverage the opportunities that underpin them.
We cover this full topic in our whitepaper: The Asset Management Industry – Challenges & Opportunities. Download now to learn more. You can also get in touch with our Asset and Wealth Management team to find out how we can help solve your challenges and boost your business.
