November 27, 2018
New Accenture Study Forecasts End to ‘Lucrative Inefficiencies’ for $1 Trillion Capital Markets Industry as It Adapts to the Digital Age
Wealth and asset managers generate most of the industry’s profits but struggle to find scale efficiencies and are highly exposed to squeeze scenarios
NEW YORK; Nov. 26, 2018 – A new study from Accenture (NYSE: ACN) shows how the capital markets industry can wring out historical inefficiencies in its business model — inefficiencies that were acceptable in order to grow rapidly and capture market share — as it now faces digital disruption and struggles to overcome fragmented cost structures and create shareholder value.
The report, titled “Capital Markets Vision 2022,” is based on Accenture’s proprietary financial analysis of the capital markets industry and on interviews with executives at leading industry firms.
Among the key findings: Wealth and asset managers generate 87 percent of overall industry economic profits (profit after taxes and cost of equity) but are ineffective at achieving scale efficiencies and should prepare for down-market scenarios, with shrinking margins. Investment banks, meanwhile, show a diverse picture: Only some institutions — both large and small — are earning 10 or more cents on the dollar in economic profit, while many others are not earning their cost of equity. And traditional market-infrastructure players’ revenues are now rivaled by those of emerging cryptocurrency exchanges.
Lucrative Inefficiencies
Capital markets firms collectively earn about US$1 trillion in annual net revenue, which translates to more than US$100 billion in economic profit, according to Accenture analysis. But as shareholders, regulators and customers continue to exert pressure on them to deliver higher value at lower cost and as quantitative easing tapers off, fee pressures will place an ever-greater burden on the industry to resolve its once-lucrative inefficiencies, the report shows.
“Some expect the capital markets sector to normalize again and resemble itself before the financial crisis, but our outlook for the years ahead is very different,” said Michael Spellacy, a senior managing director at Accenture who leads its Capital Markets practice globally and co-authored the report. “This industry still leans heavily on historically ‘lucrative inefficiencies,’ when there was little incentive to change the status quo because the industry was generating such strong profits. But unlike in other sectors, the core business of capital markets accounts for a very small fraction of its cost bases — and in an era of rapid digital innovation, that leaves the industry ripe for disruption.”
The report, based on Accenture’s proprietary financial analysis of the capital markets industry and on interviews with executives at leading industry firms, focuses on the three main sectors: investment banking, asset and wealth management, and market infrastructure. Among the key findings for each:
  • Asset and wealth managers. Two of the most profitable subsegments of the industry, asset and wealth managers seem to defy economic logic. While structurally these segments should be a scale game, in practice they aren’t. Accenture’s analysis found that even the biggest asset managers create the same economic profit margin as some of their mid-sized peers; this is also true in wealth management. Nonetheless, the report suggests that to remain successful, all buy-side players — including asset and wealth managers — will need to industrialize their businesses and capture latent scale opportunities.
  • Investment banks. The profit of investment banks varies widely, with the top-four players — all US-based — generating around US$20 billion or more in annual revenue and substantial economic profit. Other firms with full-scale investment banking offerings are not earning their cost of equity, partly because they haven’t restructured their businesses fast enough or haven’t been able to afford necessary investments. However, the report notes that size is not a strict requirement for profitability, as profitable niches exist for mid-size banks, with the most-profitable among them turning 10 to 15 cents of every dollar of revenue into economic profit.
  • Market infrastructure players. According to the report, revenue from cryptocurrency exchanges now matches that from traditional exchanges. The interdealer brokerage business — the most traditional arm of the market infrastructure subsector — is narrowly profitable on a pre-tax basis; and most interdealer brokerages are actually shrinking shareholder value. The most profitable part of the subsector are regulated exchanges, which often generate pre-tax margins greater than 50 percent. However, their growth prospects seem to be modest. Most are exploring opportunities in asset servicing, data services and traditional and cryptocurrency trading. 
“Adapting a trillion-dollar industry for the digital age while it’s entering an era of profound disruption is a complex and shape-shifting goal,” said Markus Boehme, a co-author of the report and managing director in Accenture Strategy. “But it is also an era that provides significant opportunities for those who act fast as value pools are being redistributed. Nimble firms will be able to capture new profit opportunities in a ‘race for relevance’ — while also benefiting the industry’s customers.”
A Path to Success
The report identifies more than a dozen strategic considerations for capital markets firms’ management teams as they seek success in a time of increasing disruption. Among these:
  • Leveraging AI to transform investment management. 
  • Taking capital markets financing and corporate treasury services into the digital age. 
  • Rebalancing the trading focus and operating model. 
  • Transforming the risk and compliance function. 
  • Turning dark data into business impact. 
  • Aligning HR and management models to new skill profiles and team structures. 
  • Combining cloud and cyber technology to build a flexible and resilient infrastructure. 
The full report can be accessed here:
To learn more about Accenture Capital Markets, please visit
About the Research
For the report, Accenture analyzed value pools bottom up — based on individual players’ results — creating a view on specific sector and subsector profitability, using FY2017 data as a baseline. The company used economic profit as a yardstick, deducting credit losses, full operating costs, taxes and the cost of equity. The researchers took special interest in the underlying profit dynamics for key sectors including investment banking, corporate & investment banking, asset management, wealth management and market infrastructure. The researchers then discussed the implications of this baseline and the likely development of these value pools with executives at leading capital markets firms and, during these conversations, identified key management challenges against this backdrop.
About Accenture
Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions — underpinned by the world’s largest delivery network — Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With 459,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at
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