Longevity Unlocked, Retiring In The Age of Aging is our 2024 global wealth and asset management report with Morgan Stanley. We explore the global industry outlook, revenue opportunities by using a retirement ecosystem mindset, and the generative AI revolution in the past year.

One of the defining positive trends in the past century has been the steady upward march of life expectancy worldwide. But, for all the wonderful things this has given us, it has ushered in an “Age of Aging” that has created a massive financial problem for many countries and individuals. Greater longevity has been compounded by falling birth rates across much of the developed world, straining public pension systems that were built for another era and, consequently, driving policy regimes that have shifted the retirement burden from the state or corporation onto the individual. As a result, a large portion of the world’s citizens face a daunting challenge: how to ensure a desirable and dignified lifestyle post-retirement. For higher-net-worth individuals, this challenge is nuanced but still sizable: how to preserve lifestyle for a longer post-retirement and ensure a smooth wealth transfer.

This challenge didn’t arise suddenly. The pressure has been building for decades. Nor have the key retirement industries — wealth management, asset management, and insurance — sat idly by. They have developed innovative products and services that improve people’s ability to tackle their savings, investing, and protection needs. But, as this edition of our report with Morgan Stanley makes clear, individuals’ needs are not being fully met, and the challenge is only growing more complex.

While well intentioned, the proliferation of products and services contributes to this complexity, as most consumers — as well as advisors, plan sponsors, and others in the ecosystem — suffer from the “paradox of choice.” Behind this proliferation is a dynamic in which each industry has, by and large, designed their products and services in a siloed way. This has made it extremely challenging to piece together a comprehensive solution to individuals’ multifaceted retirement problems, and has resulted in poor, disjointed customer experiences — particularly for those without access to personalized guidance.

To address retirement needs, products are not enough. Individuals need an integrated, holistic suite of solutions, designed with specific outcomes and a seamless client experience in mind. While this may sound straightforward, wealth managers, asset managers, and insurers have not been able to deliver on this idea at scale.

With this challenge comes a tremendous opportunity, not just in terms of tapping into a huge and growing revenue pool — which we estimate by 2028 could represent a $400 billion incremental opportunity for wealth and asset managers — but in terms of fulfilling the core purpose of why these industries exist.

Addressing this challenge will require adopting a “retirement ecosystem” mindset, because the greatest value unlock will be from those who can figure out how to deliver more integrated and holistic solutions across accumulation, decumulation, longevity protection, and wealth transfer needs. Each firm will need to recognize its unique starting point in order to identify opportunities to build these capabilities through closer partnerships, breaking down silos across business units, or creating entirely new business models and value propositions.

This will not be easy. Many of the firms we have spoken and worked with recognize the opportunity, but struggle with a combination of misaligned operating models, outdated technology, and organizational inertia that stand in the way of seizing it. Addressing these hurdles are well worth it, not just in terms of the financial rewards but from a societal standpoint as well.

Global asset management outlook 2024 — back on track or so it seems

In 2023, global asset management assets under management (AUM) saw a rebound to slightly above its historical peak, making up for all of the $12 trillion drop that occurred in 2022. This surge was driven by strong market performance across asset classes, led by a global bull market in equities. Peering under the hood at net flows data shows a somewhat more fragile situation. In recent history, market performance has been a substantially more important driver of AUM growth as net flows remain comparatively small in overall magnitude.

Looking ahead, we forecast a 7.3% compound annual growth rate (CAGR) in AUM from 2023 to 2028, slower than historical rates. Bright spots for growth include private markets, where the boom in private credit continues apace as lending continues to move off banks’ balance sheets, and fixed income, which is expected to benefit from structurally higher interest rates and continued investor demand for income-generating investments. Market performance is expected to continue outweighing net flows by a 2:1 ratio.

We project anemic public markets revenue growth in the next five years as alternatives continue to surge. For public markets players, revenues and profitability have stagnated. As a result, from 2018 to 2023 alternatives increased overall revenue share from approximately 34% to approximately 47%, while active strategies saw their share drop from approximately 50% to approximately 38%. Within passive strategies, despite continued net inflows, revenues remain an order of magnitude smaller than active strategies and a fraction of global totals (approximately 4% of industry). Looking ahead, we foresee a bounce back in overall industry revenues, albeit at a slower overall pace compared to past trends (5.9% CAGR from 2023 to 2028, compared to 9.1% CAGR from 2018 to 2023). However, almost the entirety of this revenue growth will be driven by alternatives, which are expected to grow at a 10% CAGR and eclipse 57% of total revenues by 2028. Public markets revenues, on the other hand, are expected to grow at an annualized rate of only 1.8%.

Global wealth management outlook 2024 — economic challenges and long-term shifts

After 2022 saw the first wealth decline in over a decade, global wealth had a strong rebound year, growing 7.0% in 2023 with continued strong growth of 7.7% expected through 2024. Growth was largely driven by strong market performance across asset classes and geographies. Year-over-year growth was particularly strong in North America, the Middle East, Latin America, and Eastern Europe. Growth was somewhat lower, but still strong, within Asia-Pacific (APAC), Western Europe, and Japan.

Looking forward to 2028, we project global wealth to grow at an annual pace of 6.7% with dispersion across regions. We expect the Middle East, Africa, and Latin America to continue experiencing the fastest growth. In Japan, following more than a decade of sluggish wealth growth, we expect a rosier near-term outlook driven by supportive government policy and households funneling a greater share of savings into investments. In absolute terms, however, North America and Asia-Pacific are expected to continue driving approximately 75% of worldwide new wealth creation until 2028.

Despite the rebound in global wealth, the wealth management industry is at a crossroads, facing a challenging environment. In recent years, total revenues have been propped up by net investment income (NII) revenues, which have captured an increasing share. However, higher revenue margin NII revenues are not here to stay, as evidenced by the drop back to approximately 22 basis points (bps) in the first half of 2024. In the near term, we expect NII revenues to continue to decrease. This has already begun to play out in Q2 of 2024. The decrease is expected due to the continued impacts from cash sorting, competitive pressure to increase cash sweep rates closer to rates from money market funds (especially in the US), and an inability to fully replace deposit NII with lending NII.

Retirement challenges in the “Age of Aging”

Long-in-the-making demographic shifts and lifespan increases have reached a critical point — in the US, for example, a historic surge in retirement is projected in the next five years as more than 30 million “Peak Boomers” reach retirement age. Many countries are now at a demographic tipping point, having shifted into a period we refer to as the “Age of Aging.” These aging populations are now pondering their futures in the context of slimmed-down and overburdened retirement systems — hammered on both ends of the public and private equation by long-term strains on government finances and a shift from defined benefit (DB) to defined contribution (DC) plans. In recent years, these trends have only accelerated in light of inflationary pressures and impending regulatory changes. Cumulatively, this has created a fundamental problem for people — and societies — trying to figure out how to save and spend in significantly extended accumulation and retirement periods.

Longevity opportunities for asset and wealth managers — from silos to ecosystems

We believe that the potential incremental revenues associated with the retirement opportunity driven by the factors underlying the “Age of Aging” could represent over $400 billion by 2028. This revenue will come from four sources: 1) increased private markets allocations, particularly for retail investors; 2) shifting personal financial assets “sitting on the sidelines” in deposits and cash into retirement-focused accounts; 3) expanding advice to a broader proportion of the population; 4) non-private markets allocation shifts due to greater longevity.

Opportunities for asset managers in 2024

Asset managers need to innovate the product shelf to meet emerging retirement needs. There is a wide range of products that help clients meet their accumulation needs. When expanding the perspective to consider products that help individuals not just meet their accumulation needs but also their protection and decumulation needs, the list is much smaller. It has, however, grown significantly over the last several years as more firms turn their product research and development (R&D) attention toward this opportunity. We expect a lot more innovation to come as the pressure intensifies to deliver better retirement solutions to a broader array of individuals across the world. Those at the tip of this product development spear stand to gain the most as demand coalesces around a more standardized set of products and providers.

Separately, asset managers need to be ready to pounce on regulatory and consumer shifts by “betting” on a handful of products best suited for key markets. Favorable government policies will play a crucial role in shaping future opportunities for asset managers, just as, in the past, they have served as catalytic events for retirement innovation and opportunities. For example, the Pension Protection Act of 2006 spurred the adoption of target date funds (TDFs) in the US by enabling automatic enrollment in retirement plans and providing a safe harbor for fiduciaries who select TDFs as default investment options. Asset managers who can anticipate and, to some extent, help shape the policy landscape will be best positioned to develop purpose-built products and services that can capitalize on the opportunities these initiatives create.

Opportunities for wealth managers in 2024

The impact of longevity differs based on the client segment in question. For high- and ultra-high-net-worth clients, longevity presents new opportunities and challenges to maintain lifestyle and navigate more complicated wealth transfer dynamics. For affluent clients, while these concerns also play a role, ensuring a smooth and stable transition to retirement is paramount.

The big opportunity — creating synergies in the retirement ecosystem

Taking a retirement ecosystem view means recognizing how combining different components can create economic synergies and enhance client offerings. Each of the main players in the retirement ecosystem provides a valuable service to the end client and, in many cases, to each other. The challenge is how to combine the services of asset managers, wealth managers, insurers, and record keepers/technology platforms to go beyond what any one provider can do to enhance the end-client experience and garner a larger (and more resilient) share of the economics across the value chain. We see three potential approaches various players in the ecosystem can adopt to capitalize on the value of building closer connections: building partnerships, improving integration across silos, and pursuing tech-led platform plays. 

We are already seeing examples of firms taking more of an ecosystem-view approach, stitching together multiple offerings to better address client needs and monetize the opportunity.

Challenges with integrated retirement models

Integrated models, in particular, are struggling to make full use of the inherent advantages they offer. Organizations that have multiple capabilities required to address the retirement challenge have certain inherent advantages — for example, they can have lower client acquisition costs, create more customized offerings, offer better control and smoothness within the client experience, and capture a greater share of the economics in the process. In practice, based on our conversations with multiple clients, even leading multi-line firms in the industry would admit they are struggling to make full use of their inherent advantages.

A tech-led approach to retirement planning

In the long term, watch out for more disruptive technology-led platform plays. Imagine what a perfect solution to the retirement challenge could look like. An individual — likely assisted by an adviser — enters (or, better yet, seamlessly links) a detailed set of personal data covering their demographics, financial status, health factors, risk appetite, and any other critical information into an interface. The interface then prompts them to describe their financial and financial-adjacent considerations, such as their investment portfolio size, the age they would like to retire, desired retirement income, interim goals (for example, college savings or buying a second property), relative prioritization, amount of downside risk, wealth transfer considerations, and preferences on health care planning.

The interface then processes that information and — rather than merely serving as a passive product marketplace — serves as an active, matching engine to translate an individual’s unique set of goals and characteristics into a bespoke product. This would be created by having manufacturers (internally and externally) bid to supply products that can be structured into a custom retirement policy composed of securities and insurance components to meet each individual’s needs and capacity to contribute. This policy can then be dynamically updated each year (or on shorter timeframes) as more information becomes available (for example, policy performance, individual’s situation changes).

In cases where individuals specify impossible or incompatible objectives, the interface would revert with the “next best option” to place them as close to their ideal solution as possible. This exercise alone would be useful to make individuals more conscious and realistic of the actual costs (for example, savings rates, contribution rates, insurance premiums) of what they’re asking for.

To be clear, no such system exists today (though some firms have comparable concepts in production), and the platform faces a variety of complicated technological, regulatory, and business model challenges. The point of this thought experiment is not to explicitly design this perfect matching mechanism but to conceive of the optimal solution and determine what pieces of it can be actually delivered today.

No single winning model in retirement solutions

In capturing the retirement opportunity, there is no single winning model, but there are challenging ones. All three models can potentially work — it depends on how they are executed. For players that already have multiple components of the solution, making an integrated model work means overcoming the governance, organizational, incentive, and technology hurdles that are preventing cooperation and development of more holistic and compelling retirement value propositions.

Players with just single components of the solution need to take a retirement ecosystem view and consider how different partnership structures or mergers and acquisitions (M&A) opportunities could help fill the gaps. For those contemplating a partnership, it will be critical to lay out the details of the collaboration, including how the economics will be shared, how responsibilities will be split, which KPIs will be used to assess the health of the partnership, and what the joint go-to-market strategy needs to look like. And regardless of whether firms pursue an integrated or partnership approach, both can and should take inspiration from the concept of the platform model because it puts the client experience at the heart of everything.

Pitfalls of disjointed retirement business models

Which brings us to what a challenging, disjointed model looks like. Imagine business units and underlying systems so siloed that it is actually easier for a customer to roll over their retirement accounts from one institution to a competitor rather than within different business units of the same institution. This is not a hypothetical — these types of situations happen all the time because organizations built their business units based on different products they pushed to the customer. Organizations that can truly anchor their business and operating models around what’s required to solve the client’s holistic needs will be the ones that win; those that continue to operate in product and service silos will end up pushing their clients elsewhere.

The generative AI revolution in global wealth and asset management — one year later

Does generative AI have the power to truly transform industries and society? The position that we took last year was a resounding “yes.” A year later, based on our hands-on consulting engagements with clients and discussions with dozens of industry leaders, our position has not changed.

While there has been some unfounded hype, organizations that have truly embraced the opportunity have learned a tremendous amount over the last year about how to extract genuine benefits from the technology. We note six key points:

1. Generative AI has moved from whiteboard to production as use cases proliferate across the value chain.
2. Firms are seeing significant productivity enhancement and are exploiting the gains that come from the “lowered cost of cognition.”
3. Advancements in methodology and how technology is deployed have reduced hallucinations and made output more useable and reliable.
4. While generative AI has led to “super analysts,” human oversight and incorporation of predictive analytics drive significant value.
5. There is significant investment in bespoke development to create differentiated capabilities.
6. The greatest value comes from driving user adoption, rather than having the most sophisticated model or technical capabilities.