AUM growth may require new strategies, business models

Despite the challenging market and economic environment, financial professionals project a recovery by year’s end and 5% median growth in assets under management (AUM) over the next year, according to a new Natixis Investment Managers survey.

Over the next three years, financial pros expect a 10% median growth rate in AUM, the survey said. It polled 2,700 respondents in 16 countries in March and April of this year.

In line with those growth expectations, respondents were more likely to say equities were appealing (39%) than not (31%).

Still, given tumultuous markets and emotional clients, financial professionals will need to recalibrate their investment strategies and adapt their services if they want to successfully grow assets, the survey said.

Among North American respondents, the top two risk concerns were inflation (66%) and rising interest rates (60%). Globally, respondents cited inflation and geopolitical conflict as the top two risk concerns (57% for each).

Accordingly, only 25% of respondents said they found fixed income appealing. With a rising rate environment, “financial professionals will need to adapt their fixed-income strategy to account for heightened duration risk,” the survey noted.

Respondents cited commodities as the most appealing asset class (62%).

“Given that prices for all commodities rise as inflation rises, [commodities] have traditionally worked as an inflation hedge,” the survey said. “The rationale cannot be clearer than a global spike in oil prices.”

The survey also noted that clients have urgent questions and concerns amid more volatility and uncertainty.

Globally, nearly three-quarters of respondents (73%) said clients were asking about getting out of the market. That figure was even greater among North American professionals, at 82%.

And in the first quarter, more than half of respondents (53%) said clients wanted to know why their return expectations weren’t being met.

With 70% of respondents saying investors fail to consider the tax consequences of their investment decisions, tax planning was one suggested way to help address clients’ return expectations.

“Financial professionals who are able to demonstrate that effective tax management helped get returns closer to client expectations will have an important edge in retaining assets for the long term,” the survey said.

The survey also highlighted the need to adapt business models as client expectations evolve.

In Natixis’s 2021 investor survey, 48% of polled investors said financial planning was the service they were most interested in, followed by retirement income planning (40%) and private investment opportunities (35%).

“Financial professionals who look to deliver on client service expectations while still delivering a consistent investment experience are finding their way to one particular solution that helps them address both needs: model portfolios,” the investment managers survey said.

Roughly nine in 10 respondents said they were currently using model portfolios, with about 43% using proprietary models developed by their firms, 31% building their own models and 27% implementing models from third party providers.