The money management business could reach 'a turning point' in 2017 (MS)

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The money management business could reach "a turning point" in 2017.

That's according to Morgan Stanley, which just published a big report on the industry titled: On the Precipice of Change.

"Evolving customer demands, oversupply, intensifying competition, and secular re-pricing make 2017 a turning point for the industry," it said.

The US bank has identified 10 potential surprises for the industry in the new year.

"These are events we believe have greater than a one-in-three chance of happening, but are not in our base case or priced into the stocks," Morgan Stanley said.

Whether you're an asset manager, a day trader, or just have a 401(k), they may have a big impact on you and your money.

Read on:

1. Increased pressure on active management

Morgan Stanley

"The stars are in alignment" for active managers to lower their fees in the new year, according to Morgan Stanley.

Money has been pouring out of their accounts and into index funds at a clip over the past few years, leaving some people wondering if the active management business is dead.

Bill McNabb, CEO of the $3.9 trillion fund Vanguard, said that active managers can survive and prosper, but only if they lower their fees.

Morgan Stanley expects them to do just that. The bank estimates that fees charged by active managers could shrink by more than a third in 2017.

2. Don't buy buybacks

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Traditional asset managers have reduced their share count by 7.5% on average over the past three years, according to Morgan Stanley, yet underperformed the S&P significantly.

"We see weak empirical evidence that greater reduction in shares count drives outperformance," the bank said.

With that in mind, Morgan Stanley thinks listed asset managers may be about to recalibrate their payout ratios, so as to invest in growth.

"The maturing sector still has pockets of growth," the bank said. "But achieving growth requires greater investment than in the past; in seed capital and capital to acquire new teams/capabilities and drive consolidation."

3. Consolidation in the mutual fund industry

Morgan Stanley

Mounting pressures in the mutual fund industry will likely lead to some consolidation in 2017.

According to Morgan Stanley, merger and acquisition activity, especially among smaller mutual fund houses, has picked up since 2015 and is likely to "accelerate" in the new year.

"We see four pain points intensifying for a highly profitable industry, which may drive more firms to weather the storm together and improve scale," the bank said.

See the rest of the story at Business Insider