No sector of the securities and investments industry will be exempt from regulation, according to a new TowerGroup research report. However, the electronic trading and wealth management sectors may be best positioned to leverage opportunities for growth as consumers’ need for financial advice increases in 2009 and as advisors and wealth managers take a more holistic approach to managing client assets.

According to the research firm, firms operating in the securities and capital markets arena (the “sell side”) will continue to grapple with myriad implications of the credit crisis in 2009, including the deleveraging of positions and mere survival. Investment managers (the “buy side”) will increase their emphasis on risk management and overall efficiency while responding to institutional investors’ demands for investment performance through use of alternative instruments and new portfolio strategies.

Those “strongest” in the wealth management space will move beyond reactive mode from daily market fluctuations and will “position themselves to take advantage of the new retail landscape.”

Other highlights from TowerGroup’s report include:

  • Regulation and the retirement crisis are two of the biggest business drivers for retail brokerage and wealth management firms. A new age of regulation will result from the financial crisis of 2008, forcing firms to focus on increased advisor oversight and potentially react to a restructuring of industry regulators. Firms will look to technology to better differentiate client segments and enhance advice programs for an aging population that is largely unprepared for retirement.
  • The sell side, sorting through the aftermath of the financial crisis, will leave no stone unturned to find cost savings in 2009. At the same time, public outcry, politics and global perception will force some knee-jerk responses by global regulators. Capital markets firms will need to take responsible proactive measures to show regulators that they have learned their lesson. At the same time, the efficiencies and speed achieved with electronic trading have become required elements for every sell-side firm as manual trading vanishes.
  • The subprime credit meltdown and the general economic crisis do not change the thrust behind the search for alpha and low-cost beta for asset management firms in 2009. In addition, the buy side has to improve portfolio and operational risk methods in an environment in which declining assets under management limit project budgets.