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The rising costs of regulation and lower investment fees will keep asset manager's profits down in the coming years, new research suggests.

Industry profits still lag their pre-recession levels by as much about 15 to 20 per cent, according to a trend report released by PricewaterhouseCoopers (PwC) on Monday. And even though global assets under management are expected to climb from $63.9-trillion to $101-trillion by 2020, profit levels may not return to former levels.

Historically high regulatory costs show no signs of decreasing, while the expense of expanding distribution networks and the addition of new investment products are increasing in developing markets, such as South America, Asia, Africa and the Middle East.

As these costs rise, the fees that asset managers charge for their services are increasingly coming under pressure,as stricter investor transparency and disclosure rules come into effect."Regulators are turning their attention to asset managers, scrutinizing their culture, interactions with customers and effectiveness in implementing required regulatory changes," the report states.

Canadian rules on fee disclosure are already changing with provincial securities regulators introducing new policies requiring advisers to break down the fees and commissions clients pay each year. Industry groups are also debating the mutual fund industry's fees structures, and what kind of compensation best serves investors and advisers.

One way to reduce the effect of higher costs is to increase scale, and the number of asset managers in some regions, such as Europe, is falling as a result.

Canadian's banks have been active buyers. Late in January the the Bank of Montreal made an offer for F&C Asset Management, a U.K.-based asset manager with $148-billion of assets under management. The $1.2-billion cash deal is meant to add "scope and scale" to BMO's wealth business, according to a statement by chief executive officer William Downe at the time of the acquisition.

BMO's move followed Royal Bank of Canada's 2010 purchase of London-based BlueBay Asset Management PLC for $1.6-billion.

But it's not just Europe that has attracted investment. Toronto-Dominion Bank and Canadian Imperial Bank of Commerce have also recently acquired firms in the U.S. PwC says the majority of the world's assets will still be held in Europe and the U.S. in 2020, even as assets in South America, Asia, Africa and the Middle East grow at the fastest pace.

Other industry costs will come from updating technology and data management systems.

These are pressures that Canadian insurers will also face as their wealth businesses become larger. The insurers have more global asset management businesses than the banks, with faster-growing assets, according to Mark MacKinnon, analyst with BMO Nesbitt Burns.

PwC's report notes that global growth in asset management will come primarily from pension funds, insurance companies and high-net-worth individuals until 2020, which will also add expenses.

"These clients will increasingly expect alternative strategies to be part of the product set offered. With this pressure comes an additional cost, mainly to the global firms by way of on-boarding clients and distributing these products," the report said.