PwC’s Roland Kastoun tells WP that rising AUM can mask weakening economics and argues that only firms focused on repeatable earnings, scale discipline and decisive strategy will thrive.
For asset and wealth managers, growth is no longer synonymous with success.
In a new interview with Wealth Professional, PwC’s Asset and Wealth Management leader Roland Kastoun argues that the industry’s traditional scorecards are obscuring more than they reveal — and that firms delaying hard choices risk becoming structurally disadvantaged.
“For decades, AUM and Net Flows have been the industry’s default measure of success,” Kastoun says. “But today, AUM and Flows alone have become increasingly blunt and often misleading metrics.”
He notes that “AUM growth can be driven by market appreciation rather than net flows from client demand,” and that “net flows are no longer a good predictor of revenue growth as firms are seeing outflows in typically pricier funds and strategies, whereas inflows are concentrated in lower cost vehicles and strategies.”
The result is a dangerous disconnect. “In that environment, growing AUM can actually obscure weakening economics rather than signal strength,” Kastoun warns.
Instead, firms are re-anchoring around earnings quality. “Leading firms are shifting their focus away from headline asset growth and toward performance metrics such as adjusted net income … and fee related earnings,” he says. “These measures reveal whether growth is truly value-creating or simply adding scale without operating leverage.”
Public markets are reinforcing that pivot. “Valuation increasingly follows predictable, repeatable earnings, particularly fee-related earnings, rather than raw asset size,” Kastoun adds.
But financial metrics alone are not enough. “Sustainable profitability depends on operational efficiency and strategic positioning — how effectively technology, data, and AI are reducing friction … and whether firms control advantaged distribution or play a differentiated, defensible role in the client journey,” he says.
Ultimately, the framing itself is changing. “In short, the industry is moving from asking ‘How big are we?’ to ‘How resilient and repeatable is our growth?’” Kastoun says. “The firms that thrive will be those that treat AUM as an outcome, not the objective.”
When growth destroys value
At what point does expansion tip from accretive to destructive?
“Growth becomes value-destructive when incremental AUM stops improving and starts to dilute unit economics,” Kastoun explains.
The inflection point is often subtle. “In practice, that inflection point shows up when fee compression and mix shift reduce revenue per dollar of assets while technology, compliance, distribution, and operating complexity push costs higher, so profit per AUM declines even while headline AUM rises.”
Warning signs are visible in the numbers. “A clear warning sign is when the cost-income ratio stays persistently high or rises, indicating that scale is not creating operating leverage,” he says.
And markets are unforgiving. “If growth doesn’t translate into durable recurring earnings, it can destroy value rather than create it.”
M&A: From optional to existential
Mergers and acquisitions have long been a growth lever in asset and wealth management. But Kastoun argues that their strategic meaning has evolved.
“M&A in AWM is still a growth strategy, but it has become inseparable from survival considerations,” he says. “Sustained fee compression, rising technology and distribution costs, regulatory burden, and operating complexity mean that organic AUM growth alone is no longer enough to protect margins. As a result, M&A is increasingly used not just to grow, but to defend economic viability, secure distribution access, and build the scale and capabilities required to compete.”
The nature of deals has shifted accordingly. “M&A has shifted from asset gathering to capability building,” Kastoun says, with firms pursuing acquisitions to accelerate access to technology, private markets, and client experience.
But execution risk has risen in parallel. “With margins under pressure, poorly integrated or value-dilutive deals are no longer tolerable,” he cautions.
Why mid-sized firms feel the squeeze
While the entire industry faces higher fixed costs, mid-sized managers are under particular strain.
“Mid-sized asset managers are under the greatest pressure because the industry’s main growth opportunities are becoming far more infrastructure-intensive, while pricing power continues to weaken,” Kastoun says.
Private markets expansion — increasingly delivered through regulated wrappers — demands “expensive, institution-grade infrastructure, specialized talent, technology, compliance, liquidity management, valuation, and reporting, regardless of firm size.”
The asymmetry is structural. “Large firms can amortize those investments across broad platforms, and smaller specialists can narrow their focus. Mid-sized firms often must build similar capabilities without either advantage, making the cost burden disproportionately heavy,” he explains.
That dynamic is driving creative partnerships. The cost pressure “has been a catalyst for the number of partnerships that have entered between public and private market firms, as well as with insurance companies and banks,” Kastoun notes, allowing one firm to bring product and another to bring distribution.
The margin squeeze: Technology and distribution
Asked which cost areas are biting hardest, Kastoun points to two.
“The largest margin pressure is coming from technology and distribution, with compliance raising the cost floor across both,” he says.
On technology, “asset managers are making heavy, largely non-discretionary investments in cloud, data, AI, cybersecurity, and modern operating platforms, often while still running legacy systems,” he explains. “These investments are essential for future growth and efficiency, but in the near term they add to fixed costs rather than replacing them.”
Distribution is equally expensive. “As flows concentrate into fewer wealth platforms, model portfolios, DC gateways, and delegated buyers, managers increasingly must pay for access,” Kastoun says, adding that expansion into wealth and private-market channels requires “experienced professionals … capabilities that are scarce and expensive.”
2026: Opportunity and necessity
Looking ahead, Kastoun expects deal activity to be propelled by both favorable conditions and structural pressure.
“Deal activity in asset and wealth management will be driven by both opportunity and necessity, but with necessity playing the larger role for many firms,” he says.
“Consolidation is a direct response to sustained margin and fee pressure, rising infrastructure costs, and the need to protect operating leverage,” he explains. “For these players, dealmaking is less about optional growth and more about maintaining competitiveness in a more concentrated and capital-intensive market.”
Decisiveness as a competitive edge
In Kastoun’s view, the defining divide in the industry is not size but clarity.
“The firms that will thrive are making clear strategic choices now, while others are clinging to legacy models and hoping incremental fixes will be enough,” he says.
“Winning firms have explicitly chosen where they compete and how they create value,” aligning to focused business models, he adds, while others remain “stuck in the middle.”
There is little patience left for drift. “Firms that delay tough decisions tend to optimize around the edges, buying time, but not changing trajectory,” Kastoun concludes.
