In November 2025, PwC released a research report on the asset and wealth management industry titled The Profitability Paradox: Competing for Relevance and Returns. There’s no shortage of emotive language; it carries rather dire warnings.
Like all great research reports, it tells us things that we mostly already know or suspect to be true, but with some useful additional data points and a few forecasts that are likely to at least be directionally correct.
The overall theme of the report is concerning for the sector: profit as a percentage of assets under management (AUM) has been falling. This is a sector-specific way of pointing out that margins are getting worse over time.
This sounds a lot like a race to the bottom, a risk that has been on the minds of active asset management firms with traditional models — and their shareholders, of course.
The reasons for this problem? Well, there are a few. Buckle up.
The ‘trouble’ with transparency
One of the issues is fee competition. You see, the sector is highly regulated and transparent by design, so fees are easily comparable across product providers. Outliers stick out and are questioned by capital allocators, financial advisers and, in extreme cases, even the media.
Pricing transparency removes much of the pricing power in an industry. When pricing power is reduced, the attractiveness of an economic profit pool is diminished.
Fund performance is also clear for all to see, with everything laid bare in publicly available fact sheets. There’s simply nowhere to hide when the fees and the product don’t make sense viewed next to each other. This is the unfortunate reality facing far too many active managers who have underperformed the market and charged exorbitant fees along the way.
These challenges have become worse in the context of a new generation of investors. People are no longer waiting for months before receiving a report and seeing how their money performed. Those who are passionate about their investments are constantly tracking performance and comparing managers while engaging with online content across multiple platforms and factoring this into their decision-making process.
And those who are less interested in playing an active role are generally working through financial advisers, but we will touch on the importance of distribution later.
The key point is that people care a lot about their wealth and have more access to information than ever before, so asset management firms operate in a deeply competitive industry with little or no pricing power. That’s not good for profits.
Competition around fees and performance has been thrust into an even brighter spotlight thanks to the adoption of so-called passive alternatives. It’s worth highlighting that the lines are blurring between passive and active offerings, as ETF adoption has become so strong that product providers are focused on innovative uses for the structures.
A better way to define this space is to focus on index-tracking (or rules-based) funds in the form of ETFs. These have proved to be a disruptive force in the market, deservedly achieving recognition as a cost-effective way to build out a portfolio. When the benchmark index becomes an easily accessible asset class, there’s even more pressure on “active” managers to justify their fees by beating the benchmark.
Satrix is the iconic example of an index-tracking business in South Africa, with Sanlam enjoying every minute of owning this business. In Sanlam’s recent deal with Ninety One, it opted to sell its active asset management business to Ninety One in exchange for shares while keeping Satrix all to itself. Who could blame it, with Satrix on almost R300bn in AUM and growing rapidly.
What does this disruption mean for active managers?
With index-tracking funds absorbing so much of the growth in the market, it’s difficult for traditional players to achieve economies of scale. Not only are they competing against one another, they are also up against the megatrends of passive investing and DIY portfolio management powered by fintechs around the world.
If it were easy to achieve scale, it’s unlikely that Sanlam and Ninety One would have combined their efforts in this space.
Without economies of scale, profits as a percentage of AUM will almost certainly be eroded over time by cost pressures. Cost efficiency is another area where the active players just haven’t made progress. The PwC report references a cost-to-income ratio for the industry of 68%, a number that would make even legacy banking businesses feel embarrassed.
Staff costs undoubtedly remain a major driver of this issue. High-flying portfolio managers expect to be paid a lot of money during difficult times and eye-watering sums during great times. This is a horrible situation for operating leverage, as shareholders are practically underwriting these earnings during the bad years and paying them away in the good years.
We’ve seen a similar situation at Goldman Sachs on Wall Street, albeit in a mergers & acquisitions and investment banking environment, with immense shareholder pressure in recent years to reduce costs and get bonuses under control.
It can’t be long until asset management firms face similar pressure to reduce fees. Automation and AI could help with this (at the expense of primarily junior and support staff), but remuneration of even the best portfolio managers won’t escape scrutiny.
The only thing we know for sure about forecasts is that they are always wrong if you treat them as a precise estimate. But as an educated guess, they are very helpful
With PwC’s report indicating that profit as a percentage of AUM (measured in dollars) deteriorated by 19% from 2018 to 2025, the natural debate is around where things go from here. PwC has a view on this: they reckon this metric will deteriorate by another 9% by 2030.
Remember, this is an efficiency ratio, not a view on absolute profits. The cash generated by these businesses will primarily depend on how AUM moves over that period, which is a combination of flows and global asset prices.
PwC bravely gives a view on this as well: it expects total AUM to grow at a compound annual growth rate (CAGR) of 7.5% to 2030, which means growth from $139-trillion to $200-trillion. Passive AUM (included in total AUM) is expected to grow at a CAGR of 10% to a total of $70-trillion by 2030.
The only thing we know for sure about forecasts is that they are always wrong if you treat them as a precise estimate. But as an educated guess, they are very helpful. PwC expects passive AUM to grow ahead of total AUM and few can fault that view. This isn’t good news for the scale issues that active managers are facing.
Large asset management groups are seen as high beta plays that do well when the broader market does well. For investors looking to express a view on global asset prices going up, picking asset management stocks can be lucrative. In the past year, Ninety One is up 52% and Coronation is up 37%. But investors need to actively manage these positions — almost like one of the portfolio managers at these companies — because things can turn quickly.
The PwC report — and a healthy dollop of common sense — suggest that most active managers are tactical plays rather than long-term investments.
A Sunday morning hike
For a buy-and-hold strategy, the right approach could be players that have built strong distribution. Over the past five years, PSG Financial Services has tripled its share price. Coronation is flat over that period (it’s had other problems) and Ninety One is up just 12%. As outperformance goes, that is quite incredible.
One of the most remarkable elements of the PSG Financial Services chart is the consistent nature of the growth. It looks more like an easy Sunday morning hike than a climb that needs ropes and ladders. This is because the advice-led model that treats distribution as a moat leads to smoother returns over time to shareholders.
Instead of earnings being thrown around by prevailing market prices and the impact on AUM, PSG Financial Services has built a business that farms new assets constantly. It is sitting in front of clients and building relationships, not just buying ads at the airport and hoping snazzy taglines will lead to inflows.
Another good example of this distribution-focused model is Quilter in the UK, although the five-year share performance of 15% would suggest otherwise. The UK has become a hostile environment for high-net-worth individuals, with Quilter having to build out a strong presence in its Affluent segment to grow assets. It uses a combination of in-house and independent financial advisers, with platforms and investment solutions available to both types on the same terms. The share price performance may be disappointing, but the company grew assets under management and administration by 18% in 2025.
One of the very wealthy people to have left the UK recently is Sygnia founder Magda Wierzycka. Having gone full circle from activist to expat and now returning swallow, Wierzycka’s experience is a reminder that South Africa isn’t a bad place to call home. It’s also not a bad place to build a business, with Sygnia’s share price up 84% over five years and 52% in the past 12 months.
The secret? A focus on low-cost index-tracking strategies. Sygnia is the disruptor rather than the disruptee.
Sygnia has an earnings multiple of just 14 vs PSG Financial Services’ 24, so the market appears to be paying up for distribution above all else. This is an important thing to keep in mind as you consider the numerous names in this sector, which range from specialists through to financial services giants such as Sanlam and Momentum Group trading at single-digit earnings multiples.
Above all else: don’t ignore the power of disruption and the importance of picking themes, not just stocks. Those megatrends are a major driver of returns.
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