“Our survey, which looked at how asset and wealth managers are engaging with the rapid progress of disruptive technologies such as AI, generative AI, Big Data, blockchain, etc, shows that the asset and wealth management market is ready for growth,” according to Albertha Charles, PWC's global asset and wealth management leader, based in London. “Global assets under management are expected to reach $171trn by 2028.”

“This is an average growth rate of 5.9% over the next five years,” Charles said in an interview. “And we expect alternative products to outperform the market, with a higher growth rate of 6.7% per annum, and assets under management to reach $27.6trn by 2028. As investors seek greater diversification and higher returns, and interest rates begin to fall, we expect the strong growth in alternative products to continue. The other important point - we don't often think about this when we talk about disruptive technologies like AI and generative AI, as we often talk about efficiency and productivity gains - one of the unusual findings of our survey is that disruptive technologies are poised to fuel revenue growth in asset and wealth management, resulting in a 12% increase in revenue for early adopters.”

"80% of the 264 asset and wealth managers interviewed in our survey agreed that AI would fuel revenue growth. All these rapid advances we're seeing in these disruptive technologies really represent a moment of opportunity for asset managers to act quickly. Because every CEO involved in asset and wealth management really needs to think about how they are going to use these technologies to redefine their value propositions, reinvent their business models and look beyond internal productivity and cost efficiency. It's now about how you unlock new sources of value, new revenues to support your growth to position yourself as a leader for the next era of asset management. That's what these transformative technologies really are: they give asset managers the opportunity to redefine their businesses."

Where does the 12% gain come from? “That's what you get as an early adopter if you unlock one of these new revenue models of offering technology as a service,” said Charles. “We've seen a number of players do that, where they either offer technology as a service or data analysis as a service. And that's really important because it reduces their dependence on traditional fee structures that have been under pressure for some time. So they're using transformative technology to differentiate their business and strengthen the resilience of their revenue model.”

There remains the question of investment. "Although this represents a huge opportunity, I think one of the challenges for the sector is to integrate these new technologies - AI, blockchain, generative AI - into existing systems. Strategies may vary depending on the scale of operation," Charles stated. "For the large players, of which there are an increasing number, we have seen them invest in new cloud-based systems. End-to-end investment platforms where they use generative AI to power the front office, middle office and outsource much of the non-essential back office."

And for smaller entities? "For medium-sized players, it's slightly different. The key is strategic partnerships, and many are entering into partnerships so that they can leverage the capabilities of industry partners," said Charles. "Whether it's fintechs or data service providers. The other thing they're doing is they're using managed services. They're really outsourcing all the capabilities that aren't core to them."

But if everyone's adopting the same technology on a similar basis, everyone's going to end up doing the same thing, right? A scenario that the expert dismisses out of hand. “The way in which you differentiate yourself can be very different depending on your size,” Charles stated. “For the larger players, a number of them develop these technologies for themselves and then sell them to the market. And some of them buy companies that also offer data capabilities. They can also expand into high-growth areas of the market, as they have the scale and expertise to do so. Private markets and alternative products still offer significant growth opportunities. We see that acquisitions in private credit and infrastructure, for example, continue to be very dynamic in the private markets space. So the differentiation for the big players is to diversify into non-commission revenues, such as technology as a service, data as a service, but also to make acquisitions in higher margin businesses, such as private markets and alternative products.”

"Today, there is all the legacy technology," Michael Delano, asset and wealth management leader at PWC in Luxembourg. "But we are in a movement, where those who have data need technology to extract the value from it and those who have technology need data to run their models."

Challenge of hyper-personalisation

"A major challenge they both face is the increasing demands of customers, who want a hyper-personalised service, they want it to be transparent, they want it to be low cost, and they want a seamless digital experience," he said. "Many asset managers are now looking to use generative AI to analyse customer data, create truly personalised profiles, understand their goals, their preferences, and personalise them in a way that can be updated almost instantly based on the information embedded in your system. So we're seeing more and more chatbots being used to free up advisers' capacity. Advisers used to spend a lot of time gathering information, and a lot of that work is now automated thanks to chatbots that do the data gathering. This gives the adviser information that they can use to tailor a response to the customer."

However, it will be necessary to instil confidence in its potential customers, in the face of the doubts that remain around hallucinations and various issues. "The survey showed that one of the obstacles is the lack of confidence, yes, in these technologies to deliver the right results every time. To address that, asset managers really need to make sure they have a human in the loop when using these technologies. There are also concerns around data privacy, so cyber security needs to be a top priority."

Talent, the sinews of war

"The talent challenge is very real," Charles noted. "If we look at the drivers of M&A in asset management today, the study shows that technology talent really does take centre stage in asset management M&A. 73% of asset managers considering M&A see access to skills and expertise as the main driver of deals over the next two to three years and 81% of those considering strategic partnerships or M&A see it as a way to improve their technology capabilities."

"So there's certainly a desire and a recognition that, as businesses look to capture new revenue opportunities and take advantage of these technologies, it's critical that they actively find the right technology partners and acquire the right talent, whether that's data skills or digital skills, in order to fully realise their potential."

"Once you've integrated these new technologies, what does it mean for your workforce. All the CEOs I speak to - and the survey confirms this - believe that this is an opportunity for technology to automate all the mundane, routine, low-value-added tasks, and to create new opportunities for your talent to engage with the much more strategic and value-added aspects of your organisation, and to really see this as an opportunity to harness the added value and potential that your team can bring and free up their time from all those mundane tasks. So it's about recognising that you then have to develop them, because you have to redefine roles, and these technologies redefine roles in the organisation. So we also need to upskill people so that they can take on these new roles, retrain them, but also give them the means to focus their efforts on how to extract value from these technologies as a new way of working."

The money of the baby boomers will gradually pass into the hands of the younger generation. Another change, stated Charles: "The new generations entering the labour market are digital first, so they will demand new ways of working. Even their approach to hybrid working means having the technology and flexibility to support it.”

"They will demand new ways of working. Even their approach to hybrid working means having the technology and flexibility to support it. But there is also the huge intergenerational transfer of wealth. There is talk of $68,000bn being transferred from baby boomers to millennials by 2030. This is a whole new generation with totally different requirements, where technology is paramount, where sustainable investment and ESG criteria, the goal, are really important to them. So it's not just changing the technology aspects, it's changing the value proposition that asset managers are delivering, and you need AI to be able to analyse all their needs, analyse the market, analyse the trends, to deliver these new value propositions in a way that you've never done before."

"We also have to recognise," added Delano, "that the younger generations are different from us and will go less to traditional financial advisers and more to social networks. New behaviours will emerge.”

Tokenisation and digital assets, two paths to follow

One of the trends that Charles has identified is tokenisation. "We are seeing a real explosion in tokenisation. We expect tokenisation to grow by more than 50%. Right now, if we talk about tokenised investment funds, we have $40bn of tokenised investment funds in the world and we expect that to grow to $317bn by 2028. And if you look at where it's being offered, it's often around private markets. With lower investment thresholds, you're obviously democratising access to these private markets by reaching a much wider investor base, which in turn will grow the market. 53% of asset managers are looking to use tokenisation for private equity and 44% in hedge funds."

"The other trend I would mention is that we expect positive inflows to drive momentum around digital assets,” Charles said. “Our survey showed that 80% of asset managers offering digital assets have seen positive inflows. As you can imagine, there have been some difficulties with market flows... The adoption rate is low for asset managers. Only about 18% are offering these digital assets."

Read the original French-language version of this interview