Mr. Smith, in November you are going to speak at the University of Liechtenstein. What will the topic of the lecture be?
I will be presenting the
Future State of the Investment Profession, a study conducted by CFA Institute.
This report, which includes findings from a survey of 1,145 industry leaders, addresses the issues that keep investment management executives up at night; they are the same issues that matter for CFA Institute as the largest association of investment professionals. Major shifts are underway that will likely result in significant change, and leaders need a better way to think through the implications of these shifts in various combinations—for their clients, the health of the industry overall, and the ongoing sustainability of their own firms.
The study explores what these changes might look like and identifies ways to influence the future state of the profession for best possible outcomes - for the investor, the industry, and society.
What was the idea of the report you are going to show at the presentation?
The report describes an industry at an existential crossroads, facing significant disruptive forces, internally and externally. Shifting regulatory environments and new macroeconomic conditions, in addition to current trends in digitisation, commoditisation and tech-centric business models will necessitate changes in the industry. The report warns that investment industry leaders who fail to transform their business models may jeopardise the future of their firms.
When we talk about megatrends – of which ones do we talk? What kind of megatrends does CFA Institute expect?
Among the megatrends identified are technological advances, redefined client preferences, new macroeconomic conditions, different regulatory regimes reflecting geopolitical changes, and demographic shifts. The scenarios are not forecasts but include possibilities for the future state of the investment industry.
To help leaders navigate through these megatrend changes successfully, while building trust and increasing the benefits to society, CFA Institute urges asset owners, asset managers and investment intermediaries to focus on these areas for the future:
Professional transformation: Develop the mindset and practices by which the investment industry evolves into a professional status akin to law or even medicine.
Fiduciary implementation: Master the meaning of fiduciary in a way that can be effectively implemented even with inherent trade-offs and conflicts.
New skills for new circumstances: Develop new-era leadership. The industry's biggest challenge is finding leadership who can articulate a compelling vision and instill an ethical culture. Improving diversity is linked to better performance and culture.
Stronger standards to restore industry trust: Specify and influence culture and practice with regard to values and costs. Create a culture and business model which align credibility and professionalism across a spectrum of critical attributes. Use the CFA Institute TRUST checklist: Transparency, Realistic measures, United values, Sustainable and fair rewards, and Time-tested relationships.
What does CFA Institute mean by «new macroeconomic conditions»? How will the world change?
One of the most pertinent examples of new macroeconomic conditions includes changes in digitisation and technology, such as robo-advisers. New technologies mean that professionals in the financial management industry may have to consider new business models to ensure that they stay current and in tune with millennials. From a geopolitical perspective, it also referes to the current uncertainty around Brexit and the changes which the implementation of MIFID II will bring in January 2018.
Which findings of the report surprised you the most?
52% of CFA charterholders surveyed expect substantial or moderate contraction of profit margins for asset management firms. This is interesting to me because that means 48% don't think margins will decrease!
How will asset and investment management change in future?
In addition to the megatrends we identified, the industry's potential future state is further complicated by important issues that are very specific to investment organizations, such as trends in digitization and commoditization, downward pressure on fees, pressures from sustainability, new tech-centric business models, and other investment innovations. Interestingly, the study also analyzed the most important skills needed for effective leadership in the future. While there are common global themes, certain regions differed in their assessment of the skills that are most important for leadership success. For example, respondents from Europe (46%) noted that the most important skill of an asset manager CEO will be the ability to articulate a compelling vision for their institution.
How «dangerous» is digitisation for the investment management industry?
Digitisation is not dangerous for the investment management industry, it's part of the bigger fintech trend which is upon us already and this is a strong positive for the industry. It will enable product design and development, customised client solutions, cheaper back office processing, more consistency of advice, ability to handle greater volumes. These are positives for clients and professionals. The industy should embrace the wave but also remember to put investors' interests first and deliver value over automated providers. Digitisation will only be dangerous for those who are not prepared to adapt their business models for millennials.
In a member survey we conducted last year, an overwhelming majority of respondents (70 per cent) consider that mass affluent investors will be positively affected by automated financial advice tools in the form of reduced costs, improved access to advice, and improved product choices. At the same time, most respondents found it unlikely that automated financial tools will replace engagement with human advisors for institutional investors, especially ultra-high net worth individuals.
Do you have an idea what all the developments mean for the financial centre Liechtenstein? Can Liechtenstein look ahead with optimism?
Absolutely, I think it's going to boom because private wealth is set to explode. The world is getting richer and AUM will grow at 6.5% pa for next ten years, according to a report published by PWC earlier on this year. The middle class will add 1 billion new people to the planet and they will all need servicing. The Duchy is set up to succeed but needs to embrace Asia, Africa and technology to do so.
The financial centre in Liechtenstein is strong and CFA Society Liechtenstein's origins date back to 2006. It was established by 15 founding partners and today counts over 100 members, who set high standards of ethics and professionalism in the investment management industry here in Liechtenstein.
However, the industry in which our local members are operating is in flux. As we are all aware, geopolitics is back and CFA Institute data show investment professionals are concerned about the potential impact of geopolitical uncertainty. Some 70 per cent of respondents in a recent survey said that investment returns over the next three to five years would be impaired and investors are increasingly worried about the risks associated with Brexit.
How this will impact the financial market here in Liechtenstein is yet to be seen. My view is that it is not all negative because inflection points create opportunities and this is all the more reason to factor it into investment decisions. It is up to us as an industry to shape the outcome.
About CFA Institute
CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion for ethical behavior in investment markets and a respected source of knowledge in the global financial community. The end goal: to create an environment where investors' interests come first, markets function at their best, and economies grow. CFA Institute has more than 146,000 members in 160 countries and territories, including 140,000 CFA charterholders and 147 member societies.
The CFA Institute Future of Finance initiative is a long-term, global effort to shape a trustworthy, forward-thinking investment profession that better serves society. For more information, visit www.cfainstitute.org/futurefinance or contact us at [email protected] to offer your ideas about how to shape the industry for the future. We encourage you to cite this report using the link www.cfainstitute.org/futurestate