This one statistic will give Wall Street stock pickers nightmares

There’s a big shift underway in the money-management business.

Passive fund which track an index are hoovering up assets, picking up 72% of all inflows in 2015, according to a survey by Casey Quirk
by Deloitte and McLagan.

That’s right. They garnered $7 of every $10 invested in funds in 2015.

That statistic in the most frightening number in the world right now for actively managed funds, which are run by stock pickers and bond managers.

“The asset management industry is now in an era of disruption and consolidation, similar to what Wall Street firms underwent in the late 1970s and 80s,” said Fred R. Bleakley, director of the US Institute, a forum for asset management bosses.

Assets under management in passive funds have surged 20% in the past five years, thanks to the demand for exchange-traded funds, according to the Casey Quirk
by Deloitte and McLagan survey.

For money managers that attempt to beat the market, it’s a different story. Of the firms with more than $10 billion in assets under management, 44% saw money flow out last year, the survey found. That compares to 40% in 2014 and 37% in 2013.
Traditional active managers as a group saw outflows last year.

This shift has been driven by retail investors, according to Jeffrey Levi, principal at Casey Quirk by Deloitte.

“Individual investors — increasingly sceptical of active management, fee-sensitive and outcome-oriented — are the drivers of industry growth,” he said.

These investors are important, as they’re expected to account for 90% of all new money invested in the $69 trillion global asset management industry through 2020, versus only 10% from institutions, according to the survey.

The intense competition for these individual investors is translating into fee pressure. Money managers have seen an 8% drop in fee rates between 2012 and 2014, and according to the survey, that trend continued last year.

“Many traditional active managers must adapt because their business models are outdated in a world in which individual investors and their need for advice are the revenue generators,” said Levi. “Fees are under increasing scrutiny, and regulatory pressures are on the rise. This shifting marketplace will in turn drive greater convergence in the industry across wealth management, asset management, insurance and financial technology.”

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