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Operational Costs on the Upswing for Asset Managers

The average cost of managing assets is climbing, consultants say, with the average cost of managing each dollar of assets going up by 4% since 2014. The “Performance Intelligence” analysis from Casey Quirk, a Deloitte business, and McLagan, a unit of Aon, points out that while industry assets under management climbed to $71.8 trillion in 2018 from $68.3 trillion in 2017, aggregate fees have declined nearly 20% in the past four to five years and overall expense growth has matched or outpaced revenue growth over the same period. As a result, operating margins fell to 32% in 2018 from 34% in the previous year. Casey Quirk and McLagan also found that non-compensation costs — including regulatory, back office processing, technology and office space — rose above 30% from 26% in 2014. Compensation expense is also on the rise, increasing approximately 5% in 2018 from 2017 for employees below the top management level, and 3% for the most senior executive ranks. “It’s now a necessity, not a luxury, for asset managers to reduce expenses by automating, streamlining data and technology, and shifting functions to lower cost locations,” said Amanda Walters, senior manager at Casey Quirk, adding that firms should consider optimizing their team structures and compensation plans.

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