2023-07-31 | Prince Naruka & Natalija Reeves
Welcome to our latest newsletter, we'll be exploring the top headlines impacting the world of wealth and asset management.
In this month's newsletter, we dive deep into the future economic predictions made by PIMCO, spotlight the emerging role of AI chatbots in wealth management, and discuss the market's response to recession fears. We also take a peek into the future of asset management and understand the implications of Consumer Duty regulations.
Bond Fund giant Pimco prepared for 'harder landing' for global economy
Daniel Ivascyn, the chief investment officer at Pimco, the world's largest active bond fund manager with $1.8tn assets under management, has expressed concerns about market optimism regarding central banks' ability to avert a recession amid their battle against inflation in the US and Europe. Ivascyn anticipates a "harder landing" and emphasizes that increased tightening by central banks introduces more uncertainty and risks to economic outlooks. As a result, Pimco is repositioning its funds to be more defensive and liquid, this shift aligns with the broader industry trend toward higher-quality fixed-income assets.
PE-backed consolidators face consumer duty advice fee reckoning
Private equity (PE) investors in the UK advice sector will need to review their client fees as stricter rules on demonstrating value come into effect with the FCA's consumer duty rules in July. Consolidators, who have acquired various firms over the years, often have multiple charging models, making aligning fees a challenge during acquisitions. The consumer duty requires firms to clearly demonstrate the value they provide to clients, including explaining any differential pricing. Acquirers will pay a premium for firms with uniform charges, while the price of an acquisition could increase if clients are paying lower rates.
The Advent of AI Chatbots in Financial Planning
Big tech and financial giants like Microsoft and JPMorgan are at the forefront of the AI race, fuelled by advancements such as ChatGPT. JPMorgan's IndexGPT, a new service utilizing AI to personalize investment selection, showcases the transformative potential of AI in finance. Similarly, Bloomberg and other institutions are leveraging AI for innovative applications. AI applications like robo-advisors and customer service chatbots have already improved financial services delivery. Undeniably, AI presents both transformative opportunities and significant challenges in reshaping the financial landscape, such as regulatory compliance and management of quality for customer service.
Fixed Income and Money Market Funds Surge Amid Recession Fears and Equity Retreat
Investors fled equities to the perceived safety of fixed income and money market funds, according to Calastone. The largest global funds settlement network reported that UK investors moved £1.4bn into bonds and cash proxies, while withdrawing £662m from equities, amid recession fears. This trend away from equities is a response to rising interest rates, with a shift towards global investing and emerging markets noted. However, ESG funds experienced an unprecedented slowdown, while the tech sector enjoyed a surge. Overall, market trends indicate growing investor caution.
One in Six Asset Management Groups will disappear by 2027
The asset management industry could witness a significant shift as one in six firms might disappear by 2027 due to rising interest rates, high inflation and entrenched geopolitical risk. The PWC global survey, encompassing 500 asset managers and institutional investors, found that approximately 16% of existing asset and wealth managers could either go out of business or be absorbed by larger entities. Moreover, the study also discovered that 73% of asset managers are contemplating mergers or acquisitions as they grapple with business model pressures amidst challenging market conditions.
FCA Warns Asset Managers to Improve Liquidity Management or Face Regulatory Action
The FCA is urging asset managers to enhance their focus on liquidity management following a recent industry review. The review discovered significant discrepancies in compliance with regulatory standards and liquidity risk management expertise. The FCA warned that firms with inadequate frameworks could face regulatory intervention if they don't promptly address the weaknesses identified. The regulator also noted that many firms were not assigning sufficient importance to liquidity risk management within their governance oversight arrangements. These directives align with the regulator's consumer duty requirements, which will become effective on July 31.
Thanks for reading. If you’d like to discuss any issues relating to the newsletter that are specific to you or your company, do get in touch.
Don't forget to sign up for the Wealth and Asset Management newsletter to get the latest headlines straight to your inbox.
