The Profitability Paradox In Asset And Wealth Management Industry

The global asset and wealth management industry is on track to run much more money for its clients. PwC’s latest report projects that global assets under management (AUM) could rise from about $139 trillion in 2025 to roughly $200 trillion by 2030. Over the same period, industry revenues are expected to climb from around $610 billion to about $840 billion.

On the surface, this looks like a straightforward growth story. More client assets, more fee income, more opportunity to scale. But the same analysis shows that profit per $1 billion of AUM has already fallen by about 19% since 2018 and is expected to decline by a further 9% by 2030. The industry is managing more capital than ever, yet earning less for every dollar it looks after.

PwC describes this as a structural profitability paradox: scale is rising, but economics per unit of AUM are thinning, and traditional levers have not closed the gap.

Why scale is not translating into profit

Three forces sit at the centre of this squeeze: fee compression, a stubborn cost base, and shifting product mix.

Fee rates are drifting down across the board. PwC’s analysis of total expense ratios shows steady compression in active equity, active fixed income, mixed funds, and money market strategies, with further downward pressure expected through 2030. Passive products, which were already priced lower, have also seen fees erode.

At the same time, passive AUM is projected to grow at roughly 10% a year to reach around $70 trillion by 2030. That shift is positive for scale, but dilutes average revenue yield because the incremental dollar of AUM is often earned at a lower fee.

Costs, meanwhile, have been slow to adjust. PwC estimates that the industry’s cost-to-income ratio is stuck near 68%, meaning more than two-thirds of every revenue dollar is absorbed by operating expenses. Despite repeated efficiency programmes, costs are projected to reach about $2.81 million per $1 billion of AUM by 2030.

Legacy operating models are a large part of the explanation. Many firms were built for a world of periodic reporting, simpler regulation, and relatively low technology expectations. They are now expected to deliver real-time digital interfaces, multi-jurisdictional compliance, richer data, and enhanced cyber security. Technology investment is unavoidable, but without a redesign of processes, much of that spend risks becoming an additional cost layer rather than a source of structural savings.

Product mix is the third pressure point. PwC expects alternative assets to grow to about $34 trillion by 2030, with private markets projected to generate more than half of total industry revenues by the end of the decade. These platforms remain more profitable per dollar of AUM than traditional mutual funds, but they are also operationally intensive. Specialist talent, complex fund structures, governance requirements, and bespoke reporting all add cost and complexity, especially as alternatives are opened to a broader retail and mass-affluent investor base.

In parallel, tokenisation is emerging as a new infrastructure and product layer. PwC expects tokenised fund AUM to grow at around 41% annually, from roughly $90 billion in 2024 to about $715 billion by 2030. This creates opportunities for access and efficiency, but also adds another technology and compliance stack that has to be paid for.

Distribution and the value of the client interface

A further shift is taking place at the front end of the value chain. Asset managers increasingly reach clients through third-party platforms, wealth managers, and digital distributors. PwC notes that buying power is concentrating in a smaller number of platforms and model-portfolio providers as separately managed accounts and model-driven distribution grow. Owning, or at least sitting close to, the client interface and the underlying data is becoming a primary source of economics.

Manufacturers that do not control distribution are often competing for shelf space on terms set by others. In practice, a larger share of total value is captured by those who manage the relationship, the advice journey, and the data, rather than solely by those who run the underlying strategies.

How firms are responding

PwC’s survey suggests that asset and wealth managers are not treating the profitability squeeze as a passing phase. Instead, many are rethinking their positioning and gradually clustering around a smaller set of business models. In PwC’s 2030 map, four archetypes stand out: large “hypermarkets” that span public and private markets with broad distribution; solutions-led platforms that organise around outcomes such as retirement, model portfolios, or tax-aware mandates; low-cost manufacturers focused on simple, scalable products like ETFs and similar vehicles; and niche champions that differentiate on a specific asset class, region, client segment, or distribution strength.

The common element across these models is strategic focus. Rather than trying to cover every asset class, client type, and geography, firms are encouraged to define where they have a genuine edge, such as, scale, cost efficiency, solutions design, or specialisation, and align product development, technology investment, and distribution around that choice. Alongside this, many managers are pruning sub-scale funds, simplifying product ranges, and concentrating on mandates that contribute meaningfully to margin rather than just adding to headline AUM.

Rebuilding the operating model around technology

Technology sits alongside business-model choices as a second major response. AI, data automation, and digital infrastructure are now central to many management teams’ plans. In PwC’s survey, a large majority of asset managers report that disruptive technologies are already influencing revenues, and many institutional investors indicate that a manager’s technology and data capabilities now play a visible role in allocation decisions.

At the same time, PwC is clear that technology on its own does not resolve the profitability paradox. The benefits tend to show up only when workflows, governance, and roles are redesigned so that automation replaces manual processes and data flows smoothly across investment, risk, and reporting functions. Without that kind of operating-model change, new tools and platforms can increase the fixed-cost base without delivering the expected productivity gains.

What happens if firms do not adapt?

PwC’s outlook is that this is less a short-term margin squeeze and more a sorting mechanism for the next decade. 89% of asset managers report profitability pressure over the past five years, but only about a quarter say they are very confident in their strategy to address it.

Firms that continue to focus on undifferentiated AUM growth, or that expand into new asset classes and regions without revisiting their operating model, are likely to see costs rise faster than revenues. Those that build complexity across alternatives, private markets, and tokenised products without strong process and technology foundations may experience the sharpest pressure.

By contrast, the managers that appear better positioned in PwC’s scenarios are those that combine these elements: a clear strategic centre of gravity – whether that is scale, solutions, cost leadership, or a defined niche; an operating model rebuilt around data and automation; and disciplined capital allocation, both in product development and in geographic and client expansion.

The paradox as a constraint

PwC’s projections still point to an industry that grows in absolute terms: more client assets, higher revenues, and expanding exposure to private markets and digital assets. The open question is which business models will capture a disproportionate share of the profits.

Seen that way, the profitability paradox is less an anomaly and more a constraint. Rising AUM and new value pools in alternatives, tokenisation, and advisory-led solutions create real opportunity, but they do not guarantee stronger economics. The firms that convert that growth into sustainable profitability are likely to be those that treat scale as a starting point, not an outcome, and that adjust their cost structures, product mixes, and technology foundations accordingly.

For investors, clients, and industry participants, the message is straightforward: the asset and wealth management sector is set to become larger and more complex, but the dispersion of economic outcomes between managers may widen rather than narrow as this transition plays out.

Brand Manager

Aayushi Thakur

Frequently Asked Questions

Q: What does PwC mean by the “profitability paradox” in asset and wealth management?

A: PwC uses this term to describe a situation where global AUM and revenues are rising, but profit earned per unit of AUM is falling. In other words, the industry is managing more money for clients but earning less for each dollar managed.

Q: Why is scale not automatically leading to higher profitability?

A: The report points to three main reasons: fee rates are compressing across active and passive products, operating costs have been slow to fall and are elevated by regulatory and technology demands, and product mix is shifting toward alternatives and new structures that are more complex and expensive to run.

Q: How is the rise of alternatives affecting industry economics?

A: Alternatives and private markets are expected to grow faster than traditional assets and to contribute a larger share of industry revenues. However, they require specialised teams, governance, and infrastructure. That means they can improve profitability where they are scaled and well-run, but they also raise the bar on operating capabilities.

Q: What role does technology play in addressing the profitability squeeze?

A: PwC’s view is that technology only helps margins if it is accompanied by operating-model change. AI, automation, and data platforms can reduce manual work and improve client service, but if they are simply added on top of legacy processes, they can raise fixed costs without delivering commensurate savings.

Q: What business models does PwC see as better positioned for 2030?

A: The report highlights four archetypes: large multi-asset “hypermarkets”, solutions-led platforms focused on client outcomes, low-cost manufacturers emphasising scale and simplicity, and niche champions with a clear specialisation. The common element is strategic focus rather than trying to be “everything for everyone”.

Sources

PwC, Asset and Wealth Management Revolution 2025 – “The profitability paradox: Competing for relevance and returns”.