Investment industry leaders who fail to transform their business models may jeopardise the future of their firms, according to a new study.
It noted that the industry was at a crossroads and needed to adapt, although it acknowledged that some firms would need help.
The CFA Institute study provides a series of planning scenarios derived by combining trends impacting all industries with other forces specific to the investment sector. These scenarios can be used as tools to steer businesses and, ultimately, improve outcomes for end-investors.
CFA Institute president and chief executive Paul Smith said: "This study clearly shows a critical need for investment firms to adapt more quickly to new conditions.
"In many cases, organisations need to adopt transformational change as we enter a new global investment era... 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 organisations."
NEW SKILL SETS
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. Soft skills such as creativity, empathy and negotiating complex situations will become increasingly important.
MR ROGER URWIN, co-author of the report and chairman of the Future of Finance Advisory Council at CFA Institute.
The major trends identified include 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 analysed the most important skills needed for effective leadership.
While there are common global themes, certain regions differed in their assessment of the skills most important for leadership success.
Respondents from North America (61 per cent) and Europe (46 per cent) noted that the most important skill of an asset manager chief executive is the ability to articulate a compelling vision for the institution.
In Latin America, relationship-building skills (42 per cent) and crisis management (39 per cent) are the two most important factors for leadership success, while in the Middle East and Africa, relationship-building skills (40 per cent) and crisis management (37 per cent) are most important.
Meanwhile, respondents based in the Asia-Pacific region see ethical decision-making (38 per cent) and relationship-building skills (40 per cent) 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 Mr Roger Urwin, co-author of the report and chairman of the Future of Finance Advisory Council at CFA Institute.
"Soft skills such as creativity, empathy and negotiating complex situations will become increasingly important," he added.
Road map for success
To help leaders navigate through these changes successfully while building trust, the CFA Institute urges asset owners, asset managers and investment intermediaries to develop the mindset and practices that will enable the investment industry to evolve into a professional status akin to law or even medicine.
Stronger standards to restore industry trust are another focus area. To do this, there is a need to create a culture and a business model that align credibility and professionalism across a spectrum of critical attributes.
For instance, the attributes listed on the CFA Institute Trust checklist are transparency, realistic measures, united values, sustainable and fair rewards, and time-tested relationships.
Key survey findings The 205 investment management professionals in the Asia-Pacific region surveyed, out of more than 1,000 professionals polled globally, indicated that significant change on all fronts lies ahead over the next five to 10 years:
CHANGING INVESTMENT TRENDS
• 81 per cent expect that environmental, social and governance factors will become more influential.
• 79 per cent expect financial centres in the Asia-Pacific region to become more influential.
BUSINESS MODELS FACING PRESSURE
• 86 per cent expect industry consolidation.
• 65 per cent expect to see more assets going into passive investment vehicles.
• 57 per cent expect profit margins at asset management firms to remain flat or contract.
• 70 per cent expect institutional investors will look to reduce costs by in-sourcing more investment management activities.
OPPORTUNITIES ON THE HORIZON
• 65 per cent expect globalisation will offer new opportunities for investment professionals, while 14 per cent perceive it as a threat.
• 51 per cent expect technologies will present new opportunities for investment professionals, while 20 per cent see these as a threat.