Is the primary responsibility of the asset and wealth management industry to generate attractive long-term investment returns for its clients?
What about its broader societal duties as the custodian acting on behalf of the owners of publicly-listed companies? Is it even possible in today’s marketplace to contemplate doing well without simultaneously doing good?
These questions defined the debate at PwC’s latest Asset & Wealth Management Industry Insider Series event, entitled “How can asset and wealth managers help UK Plc reach its full potential?”. Our panellists included Dame Helena Morrissey, Head of Personal Investing at Legal & General Investment Management, Chris Cummings, Chief Executive Officer of The Investment Association, and PwC’s own experts in disciplines such as disruption, sustainability and risk.
The discussion reflected some inescapable realities. On the one hand, society as we know it faces some potentially existential crises: not only climate change, with its potential to wreak havoc, but also a collapse of trust in government, the rise of populism and nationalism, and technological advances such as automation and AI that will change the nature of work, particularly in a world where populations are both growing and aging. On the other, few industries have a more powerful opportunity to shape the response to these crises than asset and wealth management: collectively, the sector manages £7.5 trillion worth of assets in the UK and now serves, directly or indirectly, 75 percent of households.
If those imperatives are daunting, focus on the opportunities now emerging. The greatest of these will be found in the intersection between the challenges the world now faces and the need of the asset and wealth management industry’s clients for profitable sustainable returns. Businesses able to react to this to these crossovers will turn disruption to their advantage and enhance their relationships and reputations with clients.
Time to step up
In this context, the pressure on asset and wealth managers to step out of the shadows will only increase. The industry’s clients increasingly want it to represent their views. Policymakers and regulators demand it does so. The media will hold the industry to account when it fails in this regard.
Moreover, even asset and wealth managers that reject this pressure cannot afford to disregard environmental, social and governance (ESG) factors as they invest on clients’ behalf. From the shift away from a carbon-based economy to the backlash against misogyny exemplified by the #metoo movement, many investment decisions taken without due consideration of the impact of such change will inevitably generate disappointing – and often disastrous – results.
The clock is ticking
Many of our panellists believe that time is now running out for the asset and wealth management sector to rise to this challenge. Though there are clear risks for those businesses and individuals prepared to put their heads above the parapet – the danger of political confrontation, for example, or regulatory scrutiny – positive action promises to be a source of competitive differentiation. But the panellists fear that while the industry is doing better when it comes to talking about sustainability and related issues, a disconnect between words and action far too often remains.
The dangers of failing to close that disconnect are very real. The parochial threats include regulatory intervention and competitive disadvantage. After all, the Bank of England and the Prudential Regulation Authority have already warned they may have to force the financial services industry to confront its responsibilities. As investors’ appetite for a more proactive asset and wealth management sector increases, firms that do not respond will lose out.
More fundamentally, however, there are bigger reasons to be fearful. If the asset and wealth management sector does not exercise its ownership rights as an agent of change, then who will? If we don’t change the world, what will become of it?
Questions for businesses:
- Is your business stepping up its engagement with the businesses in which it invests?
- Do you know how your clients feel about sustainability and governance issues?
- Does your business practise what it preaches on environmental, social and governance concerns?
- Are you communicating your business’s approach to disruption and sustainability to all your stakeholders?
- What does disruption mean for your business, your clients and your investments in the months and years ahead?
To view more about the Currency of Collision and how you can turn disruption to your advantage, follow the link below: