What’s different 10 years on?

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The fee issue

In terms of fund performance, “the last 10 years have been fantastic”, said Hong Kong based Vivek Mohindra, co-founder of Kristal.AI, an artificial intelligence-based asset management platform.

“Funds have made huge amounts of money because the market has been on a nearly decade-long bull run.”

On the other hand, strong cost pressure has emerged. Stricter regulations since the financial crisis have increased compliance costs while investors began a huge shift of capital from actively-managed funds into passive products.

As a result, asset management firms have had to rethink the way they operate to remain competitive.

“The biggest change in fund management since the financial crisis has been that the industry as a whole is heading toward low-cost strategies,” said Mohindra. “The average levels of fees have been steadily declining by a few basis points every year.”

Fees have decreased steadily in financial transaction services including forex trading, broking, and remittances, so it was only a matter of time before the trend caught up with fund management, he said.

Industry heavyweights Vanguard, BlackRock and Fidelity have recognised the trend and moved toward lower fee products. For example, in early August, Fidelity introduced two zero-fee market indexed mutual funds. “The pie has shrunk, the fund management industry has been disrupted.”

Another result of cost pressure has been a structural shift, which FSA has reported on. M&A in both private banking and asset management for reasons of scale and cost-efficiency continues today.

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