Asset Managers Could Lose 50 Of Their Fees Big Firms Could Take Hit

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Morgan Stanley and Oliver Wyman just published their annual blue paper on wholesale banks and asset managers, and they laid out a stark worst-case scenario for the latter.


They identify the types of asset managers that are in the worst possible shape heading into a crucial period for the industry, and which are poised to stay afloat.


For asset managers
these days, the biggest question is not how to boost fees but how to keep from cutting them. And that poses a huge problem for an industry that has struggled to cut costs during a period of booming markets and growth in assets under management.

According to a blue paper released Wednesday by Morgan Stanley
and Oliver Wyman
, industry costs have remained stagnant for the past five years. With fee pressure meaning less in revenue per dollar of assets under management, something's going to have to give.

That's especially true given the risk of what the authors call "disruption in the distribution layer." Right now, fee pressures are mounting despite a distribution model for mutual funds that supports higher fee structures.

Funds are often distributed via banks, independent financial advisers, and investment consultants. But the two firms say asset managers could eventually see 50% of their fees evaporate if their distribution shifts to an "Amazon
-type marketplace" where funds can reach investors directly. And while it's admittedly a worst-case scenario, the sheer fact that the discussion is occurring should trouble anyone in the industry.

"Such an outcome would lead to significantly more price transparency and a magnetic pull to a Vanguard-like pricing for active management," the two firms said.

Vanguard has a 25-basis-point weighted-average fee rate on its $1 trillion book of actively managed assets, which is much lower than in the rest of the industry, according to the report. With that type of downside scenario in play, it raises the questions of who is best positioned to stay afloat and who is most at risk.

Morgan cryptocurrency calendar Stanley and Oliver Wyman calculated the drop in fees for various big-money investors in the event that there's an industry-wide shift toward Vanguard-like fee levels. And some of Wall Street's biggest names, including Franklin Templeton, Waddell margin-left: auto; margin-right: auto;" website alt="Screen Shot 2018 03 15 at 3.22.34 PM" data-mce-source="Morgan Stanley / Oliver Wyman analysis"/> Morgan Stanley / Oliver Wyman analysis