Low-cost passive investment products and automation will continue to compress wealth management fees, says US researcher Cerulli Associates.
Asset managers are reacting to accelerating fee compression by offering more asset allocation advice, according to new research by Cerulli Associates.
Cerulli director Bing Waldert said there are multiple causes of fee compression in asset management, which tend to compound upon each other to prompt industry change.
"For example, greater regulation has formalised the buying process and created demand for low-cost passive products," Mr Waldert said.
"Under the influence of professional buyers, eliminating the highest-priced products is often the first screen, creating a race to the bottom as managers try to avoid having above-average fees," he said.
The increasing importance of asset allocation advice is fuelling a decline in asset management fees, he added.
"In some cases, asset managers are dropping fees on asset management products to near zero, instead choosing to charge for asset allocation, a task traditionally performed by the wealth manager," Mr Waldert said.
"The growth of asset allocation advice demonstrates how asset and wealth managers are using these industry trends to enter each other's value chains and attempt to capture a greater share of a shrinking fee pool," he said.
Automation is expected to bring asset management fees down even lower, he said.
"In addition, digital advice platforms emphasize asset allocation, which pressures fees in individual asset manager products and benefits exchange-traded funds," Mr Waldert said.
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