Institutional AUM Lagged Retail Growth

Institutional margins also declined at a slower rate than retail at about 1% annually, said the study by Mercer Oliver Wyman, in conjunction with Lazard.

In the retail space, AUM grew at 10% to 11% annually over the last decade, and now account for $26 trillion or 55% of the total, according to the study. Revenues over the period were up 7% to 8% annually – comparable to wholesale banking and brokerage.

Examining the origin of the assets being managed, the study found that the current geographical breakdown of revenues for the industry is 47% North America, 34% Europe and 19% Rest of World. Earnings growth failed to match revenue increases, showing a 4% to 5% annual hike over the decade, as operating margins fell to 23% from 32%.

The study found that more asset managers are bringing in outside help. In fact, 8% to 10% of the industry’s back and middle office is now outsourced, up from 1% to 2% in 1993.

Finally, the study said that because of the vastly different needs of asset managers’ twin customer segments – professional (such as institutional) and non-professional investors – asset companies will have to restructure around these groups, the study said.

“We see successful asset managers making a clear separation between the professional and non-professional segments. Different client needs require different business models, and few asset managers will be able to manage both simultaneously. Most large firms today are a blend of the two. This is unsustainable,” said Scott McDonald, Director, Mercer Oliver Wyman.

Mercer Oliver Wyman was formed in April 2003 from a merger of Oliver, Wyman & Company and the financial services strategy and actuarial consulting practices of Mercer Inc., and is now a division within Marsh & McLennan Companies, Inc. The firm employs more than 650 staff out of 25 offices in 12 countries in North America, Europe, and Asia.