KPMG Asset Management Opportunities and Risks Report

It’s decision time

Canadian asset management opportunities and risks report 2019

September 2019 22 || CCaannaaddiiaan an asssseet mt maannaaggeemmeennt ot oppppoorrttuunniittiiees as annd rd riissks rks reeppoorrt 2t 2001199

Top organizational opportunities

Enhanced Accessing new Increased penetration operational investor base either of existing client base processes and within and/or outside (retail, institutional, fund 64% use of technology 55% existing market 48% of fund, and/or private wealth platform)

Top organizational risks

Increasing Cyber Cost challenges complexity security risks and squeezed of regulation and proft margins 64% cost of compliance 48% 45%

Technology top of mind

69% of Canadian assets 45% are implementing tech in their managers are investing in or back offce to achieve the most exploring partnerships to integrate value and cost savings (29% front 69% technology innovation into their 45% offce/26% middle offce) business model/strategy

Top anticipated benefts from technology investments

Improving the Middle offce and Improved data 52% client experience 43% clearing services 40% governance

© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. IItt’’s ds deecciissiioon tn tiimmee || 33

Respondent breakdown

have over 1$ billion AUM cite Canada as their (assets under management) investor domicile 86% (33% over $20B) 95% (5% other)

Product types Sector

64% Investment manager 19% 14% Custodian 12% Manufacturer Private Sales/distribution 69% 5% equity (broker/dealer) 5% Other

Mutual/ Investor base pooled funds High net worth 33% 50% individuals 31% Institutional investors 57% 26% Retail 10% Other ETFs

Headquarters 71% Ontario Managed 10% Alberta accounts Hedge 5% British Columbia funds 5% Manitoba 5% Other Newfoundland 2% Other 31% & Labrador 14% 2% Quebec

Introduction

Welcome to KPMG’s 2019 and strategies surrounding them left in an increasingly saturated Canadian asset management have changed. For example, market. What’s more, they are industry opportunities & risks while the industry’s relationship growing comfortable with using report, a study defned by with technology has matured customer data to deliver more tempered ambitions, evolving greatly in recent years, it is tailored products and services, challenges, and technological nonetheless alternated by new and more diligent in their priorities. In the fourth annual reservations, shifting investment protection of sensitive data. study of its kind, we’ve surveyed strategies, and an ever-evolving There is rarely such thing as stakeholders from across the approach to data privacy and “business as usual” in asset asset management industry security. Similarly, while anxieties management. And if one thing to gain their insights and over industry regulations and the rings clear throughout our 2019 perspectives on the headwinds cost of compliance remain as survey, it is that while the shaping – and, in some cases, re- strong as ever, the focuses challenges and opportunities of shaping – their sector. We’ve also are shifting. the day may seem like old news, turned to subject matter experts evolving customer attitudes, Promisingly, the industry remains throughout KPMG to sift through industry rules, and market as focused as ever on improving the stats and make sense of the challenges are keeping players the customer experience. disruptions ahead. of all sizes on their toes. Whether through operational First looks can be deceiving. upgrades, innovative models, Join KPMG as we dig into this While most of the top risks or refned service strategies, year’s survey fndings and bring and opportunities return asset managers are eager to the future of Canada’s asset from our 2018 report, many strengthen existing customer management sector into sharper of the motivations, stakes, relationships and attract who’s focus. It’s decision time.

Staying the course “We do not see an overly pessimistic or optimistic outlook; Canada’s asset managers aren’t rather, Canadian asset managers overly optimistic about the years “ are more neutral about where Canadians are far ahead, but neither are they they will fnd growth and how from complacent, sounding the alarms. In truth, a the industry will transform but they’re not majority of 2019’s respondents given the existing headwinds,” share the same “cautiously says Joseph Micallef, National overly optimistic or optimistic” outlooks for their Tax Leader, Financial Services, pessimistic about organization and industry as KPMG in Canada. “In and of the days ahead. That they did in 2018. That’s not to itself, a neutral or wait-and-see discount the 5% of respondents approach can be detrimental at is to say that they who revealed signifcantly more an organizational level since the don’t feel like the sky pessimistic predictions for both fear of doing nothing can leave their organization and industry is falling, but at the the stragglers behind and make (up from 0% in 2018), nor the same time, they don’t them an easier takeover target sizable contingent who are by more agile players.” believe the industry is signifcantly more optimistic than poised for some great they were just one year prior. It is worth noting this year’s uptick in optimism from an resurgence either. Indeed, the more telling result organizational perspective. While is that a vast majority (83%) of Peter Hayes confdence levels are still down asset managers remain even- Partner and the keeled about the year ahead for from 2018, the fact that over a National Leader for their industry (down 2% from quarter of asset managers are Alternative Investments, 2018), and the over two-thirds signifcantly optimistic about KPMG in Canada (69%) who feel the same about their organization’s prospects is their organization (up 21% from evidence that a healthy dose of 2018). True, anxieties over rising optimism is holding out. competition, regulation creep, and technological risks continue to dominate boardroom talk, but their concerns are balanced Organization outlook by emerging opportunities, the potential for technological 2019 2018 Difference enhancements, and the stalwart Signifcantly more pessimistic 5% 0% (+) 5% confdence of an industry that is well-versed to change. About the same 69% 58% (+) 21%

Signifcantly more optimistic 26% 42% (-) 16%

Industry outlook 2019 2018 Difference

Signifcantly more pessimistic 5% 0% (+) 5%

About the same 83% 85% (-) 2%

Signifcantly more optimistic 12% 15% (-) 3%

Opportunities

Top 5 organizational opportunities

2019 64% Enhanced operational processes and use of technology 55% Accessing new investor base either within and/or outside existing market

Increased penetration of existing client base (retail, institutional, fund of fund, 48% and/or private wealth platform)

Launching new product types/services (managed accounts, sub-advisory, new fund strategies, 45% insurance-related products, and/or alternatives) 43% Data analytics to enhance product design, marketing, and pricing | Cost reduction initiatives

Top 5 opportunities for the asset management industry

2019 Data analytics to enhance product design, marketing and pricing | Enhanced operational 48% processes and use of technology

43% Enhancing investment yields through investing in new investment strategies

Launching new product types/services (managed accounts, sub advisory, new fund strategies, 40% insurance related products, and/or alternatives) | Increased penetration of existing client base (retail, institutional, fund of fund, and/or private wealth platform)

38% Focusing on distribution channel and their client needs | Cost reduction initiatives Accessing new investor base either within and/or outside existing market | Customer 31% preferences for direct and digital channels

Steadfast transformation intelligence, machine learning, mature retail market. After or automation into their all, the lack of new effciencies, New and emerging technologies business – especially from products, and customer service continue to re-code the way a margin perspective,” says enhancements will only make organizations do business. The James Loewen, Partner and it harder for asset managers asset management community National Sector Lead for Asset to stand out in an increasingly is no different. This stands Management. saturated space. In response, out in our 2019 survey where a good number of frms are “enhancing operational processes It is not surprising to see asset pursuing back and middle-offce and the use of technology” managers so inwardly focused upgrades to stand out from the returns from our 2018 study when it comes to implementing crowd, make gains in operating to become the topmost technology, Loewen continues, model effciencies, and apply a organizational opportunity (64%, “They’ve seen these technologies more tech-enabled focus on their down 1% from 2018) and the pay off in other industries and margins. most promising strategy for the now they’re starting to see industry overall (48%, up 18% tangible results within their Nevertheless, adds Loewen, from 2018). own organizations.” “When people are internally focused on what they can do “Across all fnancial services The industry’s enduring to improve margin and do more sectors, people are starting focus on technology is also with what they have, it usually to see the value of bringing a symptom of Canada’s refects a pessimistic view of technologies like artifcial the market opportunities.”

Are you on track for digital transformation?

Success with technology starts with establishing a clear vision of what you’re trying to accomplish, and then determining what mix of solutions, whether digital or analogue, are best suited to achieving those goals. In our experience, asset managers at the forefront of digitization are the ones who can answer ‘yes’ to these questions:

1. Do you have a clear digital 2. Do you know the sort of 3. Do you have the best talent strategy that is fully aligned digital experience(s) you management, risk, and to your business strategy and want to provide your clients? governance frameworks; the supported at the highest levels Defning these experiences right culture for delivering on within your frm? A clear vision can help you determine the your business strategy? These can guide you to identify mix of information, education, frameworks will help you processes and underlying and service you provide, defne the business models, technologies that will deliver and the best mix of digital capabilities, resources, the best operating model for and analogue processes for and skills, and the enabling your digital investments, and delivering those experiences. technologies that your optimize the experience for organization needs to execute your clients and the products your digital plans safely and you offer them. sustainably.

Source: Where are you placing your bets? KPMG International, October 2019

Global tech investments It’s worth comparing these strategies against those from KPMG International’s upcoming 2019 asset management digital survey, Where are you placing your digital bets? (launching October 2019), which found that 70% of asset management frms from across the globe plan to increase their digital spending by 10% or more.

End-to-end upgrades Skills gap The potential to transform back, While nearly two-thirds of middle, and customer-facing asset management CEOs operations with technology is want to pursue innovation not lost among asset managers. both within their products Some are already seeing returns and operations, less than half on their investment in machine are actively planning to up- learning, automation, and data skill their workforce to do so. and analytical tools; particularly, in the forms of enhanced Source: Harvey Nash/KPMG CIO Survey 2018 – Asset Management effciencies, stronger compliance Industry Findings mechanisms, and more effective customer engagement strategies.

When asked where respondents anticipate the most impact from their tech investments, a majority (85%) believe it reporting, control costs, and will be in enriching the client manage industry compliance – experience, followed by the benefts of which will no improving data governance doubt improve middle and front- (83%), and enhancing middle offce operations. offces and clearing services (79%). Their motivations are “Ultimately, technology many, including the desire integration and investments to carve a market niche, out- are occurring throughout the disrupt the competition, or utilize entire organization to not only back-offce enhancements to reduce the cost of service but offer a more modern, reactive, enhance the client experience,” and personalized customer says Joseph Micallef, National experience. Tax Leader, Financial Services, KPMG in Canada, noting, “While Yet while Canadian asset regulators are in support of managers are considering using technology to enhance upgrades throughout the entirety compliance, the ROI from these of their organizations, the lion’s technology investments have share of their investments are not yet been realized as both targeting back-offce systems. regulators and asset managers Specifcally, asset managers are are still not trusting of the seeking enhancements to the platform’s outputs nor their way they conduct external client robustness.”

Technology targets* Digital reservations

Response 20% 40% 60% 80% 100% Frequency Asset managers are making gains in their technological Back offce 45% investments, yet fndings from a recent KPMG survey Front offce 29% of asset management CEOs suggest there are reservations. Middle offce 26% Just 22% believed they were “very effective” at using digital *Where is technology being developed or implemented within your organization to achieve the most value and cost savings? technologies to drive their business strategy, and even less (17%) said they were effective in unlocking full value Back-offce 2.0* from their data. Response 20% 40% 60% 80% 100% Frequency How do these attitudes compare to the international Product support – external client 47% asset management reporting community? Interestingly, in KPMG International’s 2019 Organizational cost asset management digital controls (real estate 32% costs, employee costs, survey, Where are you placing overhead) your bets?, 30% admitted they had mixed feelings about the Regulatory compliance 21% value of their investments in and reporting front offce functions, and high percentage reporting little (or *Where is technology being developed or implemented within your organization’s back-offce to achieve the most value and cost savings? debatable) value from their efforts to digitize middle and back offces. Innovation allies* While some Canadian players are approaching digital transformation from within, many are seeking technology partnerships outside their organization.

Response 20% 40% 60% 80% 100% Frequency

Yes 69% 29

No 21% 9

Unsure 10% 4

Total responses 42

*Is your frm investing in/or exploring partnerships to integrate technology innovation into your business model/strategy?

Beyond the numbers making noticeable investments Tech implementation in D&A are doing so cautiously Recognition for the value of data to make sure it’s being done Technologies like automation, and analytics (D&A) in asset right and that it will achieve their artifcial intelligence, and D&A are management is growing. 43% of specifc business objectives.” viewed as catalysts for enhancing 2019’s survey respondents say operational processes, driving using D&A to enhance product Traditionally, D&A investments proftability, and delivering a more design, marketing, and pricing is have been focused on the back engaging customer experience. among the top opportunities for offce. Today, more and more Nevertheless, asset managers their organization (up 3% from players are leveraging D&A to face the same obstacles to 2018), while more (48%) believe mine client data, unlock market adoption as any other industry; it represents the most signifcant insights, and design informed specifcally, when it comes to opportunity for the Canadian investment strategies. These navigating the risks of technology implementation. industry (up 18% from 2018). are all worthwhile initiatives, yet whenever there is talk of using D&A has proven to be an asset “The industry is very quick to want in a wide range of industries, more data to an organization’s to look at various technologies and and its potential to enhance advantage, reservations are sure solutions to achieve cost savings the overall asset management to follow. or other objectives, but there is still a signifcant operational functions is well recognized. “People are very cautious of Even still, the adoption of D&A implementation risk,” says Joseph doing too much with their Micallef, National Tax Leader, tools, systems, and skills within client data, especially given the the asset management feld has Financial Services, KPMG in history of public data hacks been slow among Canadians. Canada. “This is a key area that, if and leakages, and the fact not done properly, poses a very “Bringing D&A into an regulators and governments strong risk to organizations not organization isn’t an overnight are holding organizations more realizing their overall return on task; it’s not like you can simply accountable for their information investment. As such, I expect tech fip a switch and change your management,” says Hayes, implementation, partnerships, entire operating model in a day,” noting, “As asset managers or acquisitions of such to stay top- says Peter Hayes, Partner and proceed to wield more client of-mind in the industry.” National Leader for Alternative data, they need to be aware of Investments, KPMG in Canada. how they’re becoming more “Even the big shops who are exposed to these risks.”

Adopting D&A*

Response 20% 40% 60% 80% 100% Frequency

Artifcial intelligence – to make investment 18% 2 decisions

Data analytics to assist 82% 9 portfolio managers

*Where is technology being developed or implemented within your organization to achieve the most value and cost savings?

New on the shelves fund type liquidity but with some illiquid investments within them. It has been only a few months “For the most part, people are “ since the beginning of liquid Over the last three alts regime in Canada, and yet of the shared view that the bull- years, we have lost a majority of Canadian asset run will end soon, which means signifcant players and managers (51%) are either saying people will be moving their big innovators in the “no” or are unsure if they’ll make money,” predicts Hayes. “The sort use of the structure. Regardless, of returns people have been able asset management the fact that asset managers to get by simply sitting passively in space to M&A. If demonstrate a heightened the market for a decade or more you’re a retail fund interest in launching new won’t continue forever. Asset manager that’s products and services compared managers realize that to keep their not a bank or an to 2018 suggests a keenness for client’ money when the market insurance company, does turn they need to have innovation all the same. I think you look at something else to put them in.” “Canada has tended to be behind that and realize it’s the curve a bit on alternative Non-traditional lending products getting even harder products, which is evident are also rising in popularity. to compete, so you when you look at their overall This is due in part to the exit have to either innovate of numerous large players that share of alternative products technologically or in in comparison to mutual funds existed before the fnancial and ETFs [exchange-traded crisis, as well as the fact that terms of your product funds],” observes Loewen. “I the banks don’t typically lend as lineup to be able to expect that to balance out. If much as the mid-market needs. survive. you mostly have retail products, I think some people are looking Speaking to the overall push James Loewen to try and build more in terms towards developing and Partner and National Sector Lead for Asset Management of alternative products.” introducing new products in general, Hayes notes, “It’s the As the historic US bull-run draws combination of the ongoing to an inevitable close, it is likely need to offer clients more and that demand for yield products focus on returns. You need to will rise as appetites for liquid have somewhere else to put that products cools down. To that end, money, and you also want to keep some players are looking into your clients interested in what and hybrid products that offer mutual what you have to offer for them.”

Is your organization planning to launch a ‘liquid alternatives’ product under the new Alternative Funds regulatory regime?

Response 20% 40% 60% 80% 100% Frequency

Yes 26% 11

No 52% 22

Unsure 21% 9

Total responses 42

Tightening the belt “We still see outsourcing by According KPMG International’s managers to try and reduce 2019 asset management digital Cost reduction initiatives remain costs, but it’s not quite the survey, Where are you placing a focus for asset managers. panacea it used to be. I think your bets?, asset managers Nearly half (43%) believe such more impact is being felt in are focusing their digital efforts will draw benefts for their the alternative product space efforts primarily on front offce organization (same from 2018) where people might’ve done enhancements (e.g. marketing, and 38% believe the strategy things in-house in the past sales, and distribution). is an opportune move for the but are now looking to service industry (down 10% from 2018). providers to do more,” says James Loewen, Partner and Enhancing operations through the National Sector Lead for Asset use of technology appears the Management, KPMG in Canada. primary means of achieving those cost reductions. This is evident in the overall push to streamline and improve all functions throughout the organization.

Risks

Top 5 organizational risks

2019 64% Increasing complexity of regulation and cost of compliance 45% Cost challenges and squeezed proft margins 43% Push for a lower management fee environment 40% Cyber security risks 36% Intensifed competition and consolidation

Top 5 risks to the asset management industry

2019 60% Push for a lower management fee environment 52% Increasing complexity of regulation and cost of compliance 50% Cost challenges and squeezed proft margins 48% Intensifed competition and consolidation 31% Cyber security risks

By the books asset managers and the industry already constrained determining in whole up from 2018, and how to prioritize investment Regulation creep and the rising the pressure is being felt on all dollars between front, middle cost of compliance continue fronts. Disparate rules between and back offce functions is a to weigh heavy on the asset provinces and countries are constant struggle,” says Joseph management feld. making it diffcult (and costly) Micallef, National Tax Leader, “If there’s one concern I for players to expand into Financial Services, KPMG hear time and time again from less saturated markets, while in Canada. regulators’ increased focus on asset management frms, it’s One trend that continues to be supervision and enforcement the rising cost of compliance – seen, Micallef continues, is the and for good reason,” says continues to keep asset outsourcing of tax compliance James Loewen, Partner and managers on alert. and reporting. This has not only National Sector Lead for Asset Moreover, regulators are placing been driven from a cost angle but Management. “The regulatory also to enhance tax effciencies landscape is overwhelming right are more emphasis on managers to use more sophisticated from mining data through the now when you consider the use of smart automation. breadth and depth of regulatory tools and D&A to monitor their activities and priorities, and with compliance. This is resulting in “When an investment fund can new regulations still coming even more investment costs. align its tax reporting with the into effect, those concerns are economic returns of the fund, “[Regulators] are looking for only growing.” the overall client experience will compliance-related issues to be enhanced,” he adds. Certainly, the increasing be identifed and detected complexity of regulations and more proactively as opposed to Promisingly, regulators have cost of compliance emerged as after-the-fact. However, since made public their intent to the top perceived risk to both organizational budgets are reduce regulatory burden and

re-examine rules that may be has already reached the lowest redundant or lead to duplicated level at which businesses efforts. This is a positive can operate on a long-term A shrinking pool development on paper, yet basis. That being said, there is progress remains slower than continued pressure from the Canada’s asset management the industry would prefer and regulators and investors on this feld has become elbow-room many are skeptical that there topic and lots of press about only. With many of the possible consolidations already taken will ever be any signifcant high fees in Canada, so this place, there are very few actual reductions. friction isn’t likely to go away signifcant independent asset anytime soon.” How low can you go? managers left in Canada. Now, it’s a matter of numerous large Standing room only The push for lower fees has been asset managers competing for a relatively static pool of clients. felt for years, and relief seems As industry consolidation and unlikely. Industry consolidation alternative offerings enter the With a view of the competitive has only served to raise the fray, the players are being landscape ahead, Peter Hayes, competitive stakes and the challenged to stand out from Partner and the National Leader maturation of the market is the crowd. This is especially for Alternative Investments, pressuring all asset managers true for asset managers in the KPMG in Canada, says, “There to offer better deals than the retail space who must remain will be more acquisitions to frm down the street. innovative in their products and come because the more scale One way Canadian asset service strategies to carve their you can get, the cheaper you managers are dealing with market niche. can do things. Otherwise, this challenge is by being more frms are focused on getting “Although the competition from transparent and vocal in how out there with new products fntechs and disruptors like robo- their fees are being used; be and services to lure existing advisors is still relatively small in it to improve service, advocate clients away from the the Canadian space, this trend for issues on the clients’ competition.” behalf, or generate in-house can change very quickly, and research and statistics that people can’t ignore it,” warns beneft the organization and its James Loewen, Partner and customers alike. Another is to National Sector Lead for Asset offset the impact of a lower- Management. “If you’re in that fee environment by bearing small- to middle-sized category, lower fees on certain product you have to have a niche, or lines, deploying cost-saving you’re just not going to be able initiatives, or launching higher- to survive.” margin products to capture a Competition from outside more signifcant share of the Canada’s borders is also a customer wallet. concern, be it from competing Even still, says James Loewen, frms in the US or overseas, or Partner and National Sector Lead monolithic players like Google for Asset Management, one or Apple or Amazon which have wonders how low the industry the fnancial backing and brand can reasonably go: “A lot of recognition to become billion- people feel the fee environment dollar managers in short order.

“You have to consider that raise their cyber defenses to are all rooted in the recognition companies like Apple have a a level where they now feel that the traditional approach vast amount of Canadian credit more protected than they did won’t cut it with today’s tech- cards on fle, meaning they could in the past. savvy customers. easily turn around tomorrow and say ‘Here’s an ETF and we’re Still, while confdences may “The demographics have been going to charge you two basis be higher and the headlines shifting, but I’m not sure that any points, give us all your money.’ less sever, there’s no room for of the asset managers have truly In theory, it would be relatively complacency. kept up with having offerings easy,” suggests Peter Hayes, for every generation that’s out “The industry has been a little there and building products for Partner and the National Leader bit more quiet about their cyber for Alternative Investments, the next one,” says Peter Hayes, concerns, but make no mistake: Partner and the National Leader KPMG in Canada, predicting, “I the threats are still there and the believe that’s where signifcant for Alternative Investments, industry is on alert,” observes KPMG in Canada. disruption will occur; at least, James Loewen, Partner and opposed to new technology National Sector Lead for Asset Staying current with changing everything overnight.” Management. “Asset managers demographics means more are still talking about cyber in the than introducing new products Cyber reservations boardroom and they’re looking or adopting new marketing all of their contact points with strategies. It means upgrading Cyber security returned as a clients and service providers to customer channels to capture top risk among 2019’s survey shore up their weaknesses.” the attention of Millennials and respondents, but there are Gen Zers, adjusting services to reasons to believe anxieties are Keeping up with Canadians match Boomers’ lifestyles, and waning. Canadian players are still taking genuine steps to align aware of the risks posed by cyber- It may not have been identifed with public attitudes (e.g. socially attacks and the related regulatory in this year’s top risk results, responsible investing). penalties and reputational damage but the need to stay current but are seeing fewer headlines of with currents demographics is “There’s a real need to respond major cyber incidents now than woven into many of this year’s and to get ahead of client they may have in previous years. responses. Moves to enhance demographics. It may not be Moreover, the specter of data the client experience, weave stated explicitly in this year’s breaches and cyber-attacks has D&A into customer strategies, responses, but it is woven been hanging over the industry or offer products better suited throughout the perceived risks,” for years, prompting many to to various generational clients adds Hayes.

Conclusion

In an era of digital revolutions, market demands and develop well that they need to stay on crowded markets, and products and services to match. track with their transformational regulation creep, now is not the The likes of data analytics, cloud efforts, or else they’re going to time for complacency. Asset computing, automation, and lose their competitive advantage managers are under pressure even artifcial intelligence are and get lost in the past.” to deliver services that align no longer far-off considerations, with customer’s tech-savvy but tools that are being actively Certainly, now is the time to act. expectations, while threats explored and implemented Yet with concerns over cyber of being out-innovated by the today (albeit, with varying levels security and regulator scrutiny competition are keeping frms of confdence and success). at their highest, Canadian of all sizes on their toes. asset managers continue to “For the most part, Canadian balance their bold strategies The good news is Canadian asset managers recognize with cautious executions. Such frms are taking action. Many that industry transformation has always been Canadian way, are investing in the tools and is ongoing and here to stay,” but if growth and customer capabilities to advance front- says Joseph Micallef, National loyalty are the ultimate goals, to-back offce functions, while Tax Leader, Financial Services, then now is the moment to equal numbers are making better KPMG in Canada. “Firms know make impactful decisions. use of their data to narrow in on

If you have questions about the contents of this report or would like support in navigating any of the opportunities and risks described, please contact us.

James Loewen Peter Hayes Joseph Micallef Partner, Audit, National Partner, Audit, National Partner, Tax, National Tax Director, Investment Director, Alternative Leader, Financial Services Management and Funds Investments Practice KPMG in Canada Practice KPMG in Canada 416-777-8037 KPMG in Canada 416-777-3939 [email protected] 416-777-8427 [email protected] [email protected]

Appendix: Opportunities and risks

Organizational opportunities for 2019

64% Enhanced operational processes and use of technology

55% Accessing new investor base either within and/or outside existing market

Increased penetration of existing client base (retail, institutional, fund of fund, and/or private 48% wealth platform)

Launching new product types/services (managed accounts, sub-advisory, new fund 45% strategies, insurance-related products, and/or alternatives)

43% Data analytics to enhance product design, marketing, and pricing Cost reduction initiatives

Organizational opportunities for 2018 Increased penetration of existing client base (retail, institutional, fund of fund, 65% and/or private wealth platform)

65% Enhanced operational processes and use of technology

58% Accessing new inventory base either within and/or outside existing market

43% Cost reduction initiatives

Demand for solutions and specialties (Outcome-oriented investing and multi-assets) 38% Launching new product types/services (managed accounts, sub-advisory, new fund strategies, insurance-related products, and/or alternatives)

Organizational risks for 2019

64% Increasing complexity of regulation and cost of compliance

45% Cost challenges and squeezed proft margins

43% Push for a lower management fee environment

40% Cyber security risks

36% Intensifed competition and consolidation

Organizational risks for 2018

58% Increasing complexity of regulation and cost of compliance

45% Cyber security risks

40% Push for a lower management fee environment | Cost challenges and squeezed proft margin

Failure to adapt to changing customer preferences Failure to adopt new technologies 35% successfully Intensifed competition and consolidation

33% Tax changes

Asset management opportunities for 2019 Data analytics to enhance product design, marketing and pricing Enhanced operational 48% processes and use of technology

43% Enhancing investment yields through investing in new investment strategies

Launching new product types/services (managed accounts, sub-advisory, new fund 40% strategies, insurance-related products, and/or alternatives) | Increased penetration of existing client base (retail, institutional, fund of fund, and/or private wealth platform)

38% Focusing on distribution channel and their client needs | Cost reduction initiatives

Accessing new investor base either within and/or outside existing market | Customer 31% preferences for direct and digital channels

Asset management opportunities for 2018

50% Enhanced operational processes and use of technology

Cost reduction initiatives Launching new product types/services (managed accounts, 48% sub-advisory, new fund strategies, insurance-related products, and/or alternatives)

Customer preferences for direct and digital channels / Mergers and acquisitions to enhance 43% market position

40% Data analytics to enhance product design, marketing, and pricing

35% Accessing new investor base either within and/or outside existing market

Asset management industry risks for 2019

60% Push for a lower management fee environment

52% Increasing complexity of regulation and cost of compliance

50% Cost challenges and squeezed proft margins

48% Intensifed competition and consolidation

40% Cyber security risks

Asset management industry risks for 2018

55% Cyber security risks | Cost challenges and squeezed proft margins

53% Push for a lower management fee environment

45% Intensifed competition and consolidation

43% Increasing complexity of regulation and cost of compliance

38% Failure to adopt new technologies successfully

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2019 KPMG LLP, a Canadian limited liability partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 22851 The KPMG name and logo are registered trademarks or trademarks of KPMG International.