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Next 5 Years Critical for Investment Industry: CFA Institute

By Michael S. Fischer

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“Our industry is at an inflection point, where success or failure hangs in the balance,” CFA Institute’s chief executive Paul Smith said Monday in a statement upon the release of the organization’s Future State of the Investment Profession study.

“Industry leaders will make decisions over the next five years that will have an impact not just on their firms, but also on the entire landscape of the investment profession as we know it.”

The report’s publication was timed to coincide with CFA Institute’s Putting Investors First campaign, an annual initiative to focus the industry’s attention on the needs of investors around the world.

The study identified several megatrends, including demographic shifts, technological advances, redefined client preferences, new macroeconomic conditions and different regulatory regimes reflecting geopolitical changes. These trends are not forecasts, the report said, but point to possibilities for the future state of the investment industry.

The report was based on 1,145 responses, including 644 from CFA Institute, collected in December. In addition, Institutional Investor conducted interviews with 19 investment management executives to obtain context and further details about the collected data.

Key Findings

Two investment trends stood out in the study. Seventy percent of investment professionals expected financial centers in the Asia/Pacific region to become more influential.

Seventy-three percent of respondents said they expected environmental, social and governance factors to become more influential in investing.

In fact, ESG’s influence is already being felt. A recent study found that retail investors want their financial advisor to communicate more about ESG investing so they can align their investments with their personal values.

The study also found that business models were facing pressure, as 84% of respondents anticipated industry consolidations.

Seventy percent said they expected more assets to go into passive investment vehicles. In addition, 63% said profit margins at asset management firms would remain flat or contract.

And 57% of investment leaders expected institutional investors to reduce costs by bringing more investment management activities in-house.

More than half of respondents looked to globalization for new opportunities, while about one in five perceived globalization as a threat.

Forty-nine percent said they expected technologies to present new opportunities for investment professionals, while 23% saw these as a threat.

Leadership Skills Critical to Future Competitiveness

The study analyzed the most important skills critical to effective leadership in the future. Some common global themes emerged, but certain regions differed in their assessment of the skills that are most important for leadership success.

Sixty-one percent of North American respondents from North America and 46% of European ones noted that the most important skill of an asset management CEO would be the ability to articulate a compelling vision for the institution.

In Latin America and in the Middle East and Africa, some 41% said relationship building skills and 38% said crisis management would be the two most important skills for leadership success.

For about four in 10 Asia/Pacific respondents, ethical decision-making and relationship building skills were especially important.

“Whatever the future holds, leaders in the investment industry will need new skills, and they will need to recruit and develop employees along new dimensions,” said Roger Urwin, the report’s co-author and chair of the Future of Finance Advisory Council at CFA Institute, said in the statement.

“Soft skills such as creativity, empathy and negotiating complex situations will become increasingly important.”

Adapting to Change

The CFA Institute urged asset owners, asset managers and investment intermediaries to focus on four areas for the future:

  • Develop the mindset and practices by which the investment industry evolves into a professional status akin to law or even medicine
  • Master the meaning of “fiduciary” in a way that can be effectively implemented even with inherent tradeoffs and conflicts
  • Find leaders who can articulate a compelling vision and instill an ethical culture in the new era. Improving diversity is linked to better performance and culture
  • Create a culture and business model that align credibility and professionalism across a spectrum of critical attributes

“This study clearly shows a critical need for investment firms to adapt more quickly to new conditions,” Smith said. “As the drivers of this transformation, industry leaders hold our profession’s future in their hands.

“They must demonstrate their purpose and passion to serve others, show investors the value of what the industry does and elevate the trust that end investors feel in investment organizations.”

— Check out CFA Institute Blasts Senate’s Move to Block Auto-Enrollment Retirement Plans on ThinkAdvisor.

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