NEW YORK & LONDON–(BUSINESS WIRE)–With near-record income ranges in 2020 for funding banks (sell-side) and robust belongings below administration (AUM) progress for wealth and asset managers (buy-side), the capital markets business faces a vital alternative to speed up know-how investments to modernize its operations, improve the shopper expertise, and shield towards disruption, based on a brand new report from Accenture (NYSE: ACN).
The report, titled “Towards the Markets of Tomorrow: Capital Markets Vision 2025,” relies on Accenture’s proprietary monetary evaluation of the worldwide capital markets business for 2020 and builds upon a previous report and evaluation of 2017 knowledge. In 2020, the capital markets business reported revenues of US$1.12 trillion and income* of US$119 billion. The buy-side generated 90% of the business’s income, up from 87% in 2017, regardless of funding banks’ revenues reaching ranges not seen for greater than a decade at over US$285 billion.
Whereas funding banks have been restructuring and chopping prices because the monetary disaster, these actions have achieved restricted success, based on the report. Banks’ cost-income ratios, which measure how effectively the financial institution is run, have remained at related ranges over the previous decade. On common, cost-income ratios got here in at 61% in 2020, down only one% from 2010 ranges, with some banks reporting ratios of as much as 100% final yr.
“2020 was a robust yr financially for funding banks, however the vital query is whether or not that is the beginning of a brand new trajectory or an anomaly as a result of elevated market volatility,” mentioned Matt Lengthy, a managing director who leads Accenture’s Capital Markets business group in Europe and co-author of the report. “Funding banks’ position because the vital nexus that connects corporates with buyers may very well be threatened as different gamers step in to take market share utilizing know-how to disrupt the business. Funding banks ought to speed up investments in new applied sciences, coupled with knowledge and analytics, to remodel their operations and infrastructure, and improve the shopper and worker experiences.”
The report recommends that funding banks reinvest their 2020 income to completely bend the associated fee curve, utilizing automation to assist cut back front-office processing prices and reshape help capabilities, and alter their actual property footprints to account for employees working remotely or in lower-cost places. Banks even have a chance to reevaluate their enterprise methods to deal with merchandise, companies, geographies, and clients the place they’ve a aggressive benefit and to make use of knowledge and analytics to create extra focused buyer interactions.
Wealth administration belongings skyrocket however rising prices cannibalize revenues; asset administration revenues decline
Whereas the buy-side generates the overwhelming majority of the business’s income, income progress is exhibiting indicators of slowing as prices stay excessive. For asset managers, the hole between AUM and revenues continues to widen, with AUM up 4.4% in 2020 and revenues lowering 2.6% regardless of a slight discount in prices by 0.4%. The report means that asset managers transcend lowering prices and sort out bigger structural points, together with product and payment pressures, distribution challenges, and operational inefficiencies.
In the meantime, the wealth administration business has grown tremendously however has additionally grow to be extra crowded and aggressive, with prices cannibalizing revenues. Regardless of a 24.6% rise in AUM in 2020, revenues solely rose barely at 1.8%, and prices had been up 1.4%. The report notes that extra versatile operational processes and the broader adoption of know-how options, like synthetic intelligence (AI) and cloud, might assist create a cheaper working mannequin and allow companies to create higher shopper experiences. This could enhance each side of the cost-income ratio.
One other space of the buy-side that’s rising quickly is personal markets, made up of companies within the personal fairness and different asset administration area. They’ve been the direct beneficiary of traditionally low rates of interest, altering central financial institution financial coverage and a flood of low-cost debt and inflated equities. AUM rose 19.5% in 2020 and revenues elevated by 3.9%, however the speedy rise in prices at 9.3% is offsetting constructive good points. By embracing cutting-edge knowledge and analytics options, personal market companies might optimize the funding course of, in the end serving to them transfer quicker and cut back prices, based on the report.
“The decoupling of belongings below administration and revenues is changing into extra pronounced for the buy-side, and these companies can’t simply use cost-cutting techniques to realize the mandatory progress; they should digitize a lot of their operations,” mentioned Laurie McGraw, a managing director who leads Accenture’s Capital Markets business group in North America. “Corporations must take decisive motion and absolutely embrace AI and knowledge and analytics for quicker decisioning and to offer shoppers with extra focused and personalised experiences.”
The complete report may be accessed here.
*The reference to income all through the discharge is calculated as financial revenue (revenues minus credit score losses, full working prices, taxes and the price of fairness capital).
Concerning the Analysis
Accenture analyzed publicly out there info from international capital markets companies to outline a transparent view of profitability on the business and sector stage (funding banking, asset administration, wealth administration, personal markets, exchanges and asset servicing) utilizing 2020 enterprise monetary outcomes as a baseline. Accenture calculated financial revenue for the business, outlined as revenues minus credit score losses, full working prices, taxes and the price of fairness capital. The evaluation and key administration challenges had been validated by way of discussions with executives at main capital markets companies.
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Accenture’s Capital Markets business group helps wealth and asset managers, funding banks and exchanges rethink their enterprise fashions, handle threat, redefine office methods and enhance operational effectivity to arrange for the digital future. To be taught extra, go to www.accenture.com/CapitalMarkets.
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