CFA Institute Study Reveals Leaders Must Transform if Investment Industry is to Thrive

Industry research outlines the trends and disruptions, suggests roadmap needed

The Future State of the Investment Profession study released today by CFA Institute describes an industry at an existential crossroads. It warns that investment industry leaders who fail to transform their business models may jeopardize the future of their firms. The report provides a guide to investment industry leaders looking to adapt, however, and it is timed to coincide with the Putting Investors First campaign, a recurring CFA Institute annual initiative to focus the attention of the industry on the needs of investors around the world.

The study provides a series of planning scenarios derived by combining megatrends impacting all industries with other forces specific to the investment industry. These can be used as tools for leaders in investment management to steer the future of their businesses and ultimately improve outcomes for end investors.

"Our industry is at an inflection point, where success or failure hangs in the balance," said Paul Smith, president and CEO of CFA Institute. "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."

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.

Leadership Skills Critical to Future Competitiveness

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. Respondents from North America (61%) and Europe (46%) noted that the most important skill of an asset manager CEO will be the ability to articulate a compelling vision for the institution. In Latin America and in the Middle East and Africa, relationship building skills (42% and 40% respectively) and crisis management (39% and 37%) will be the two most important skills for leadership success. Respondents based in Asia Pacific see ethical decision-making (38%), and relationship building skills (40%) as 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, a co-author of the report and chair of the Future of Finance Advisory Council at CFA Institute. "Soft skills such as creativity, empathy, and negotiating complex situations will become increasingly important."

Roadmap for Success

To help leaders navigate through these 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.

"This study clearly shows a critical need for investment firms to adapt more quickly to new conditions. In many cases organizations need to adopt transformational change as we enter a new global investment era," noted Smith. "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."

Key Survey Findings

The views of more than 1,000 investment management professionals, including CFA charterholders indicate that significant change on all fronts lies ahead over the next 5-10 years:

Changing Investment Trends

• 73% expect environmental, social, and governance factors will become more influential
• 70% expect financial centers in the Asia Pacific region will become more influential

Business Models Facing Pressure

• 84% expect industry consolidation
• 70% expect to see more assets going into passive investment vehicles
• 63% expect profit margins at asset management firms to remain flat or to contract
• 57% expect institutional investors will look to reduce costs by in-sourcing more investment management activities

Opportunities on the Horizon

• 55% expect globalization will offer new opportunities for the investment professionals, while 18% perceive globalization as a threat
• 49% expect technologies will present new opportunities for investment professionals, while 23% see new technologies as a threat