CFA challenges investment industry: transform or be disintermediated

CFA Institute, the investment management industry’s global think-tank and lobby group, has come out with a very strong challenge to the industry to “transform” itself or risk being “disintermediated” in the face of industry difficulties.

The challenge comes in the form a global study entitled “Future of the Investment Profession” issued on April 5, led by CFA managing director Nick Pollard, which includes findings from a survey of 1,145 industry leaders worldwide, including in the Asia-Pacific.

“This is a very important moment in time for the investment management industry. The survey respondents and our interpretation of what they have been saying bear that out. There are great opportunities going forward but there are also some significant trends," says Pollard in an interview with The Asset.

"For those people who are running the investment management industry, they have to come out with their own responses to how their own organization plays this out, and which aspects they want to embrace and which ones they want to downplay. Doing nothing is not a solution,” continues Pollard.

Among the significant trends that the study cited are:
• Uncertainties brought about by geopolitical developments such as Brexit, Trump’s election, regulatory reform, etc;
• Disruptions brought about by fast-paced developments in the financial technology (fintech) sector;
• The persistent low-yield environment and the resulting shift from passive to active management.

In particular, CFA recommends the industry focus on changes such as:

• New skills for new circumstances: recruit and develop talent along new dimensions and improve diversity.

“The industry’s biggest challenge is finding leadership who can articulate a compelling vision for the institution and instill an ethical culture. Improving diversity is linked to better performance and culture,” Pollard says.

• Fiduciary implementation: learning to balance fiduciary responsibility by putting the interests of clients first when determining investment strategy, limiting conflicts of interest and investing to the standard of care of a prudent expert – within the context of their own viability.

“Putting clients' needs above all else will be key to success,” Pollard says.

• Restoring industry trust: emphasize strong values and show societal responsibility; communicate early, fully, and often, and to fill gaps in understanding.

“We expect to see more consolidation, greater pressure on margins, and a louder voice from the consumers. The key aspect out of all those is rebuilding trust. And turning trust, transparency and assets into a competitive advantage,” Pollard says.

The future of the investment industry is important for the functioning of the global economy, for the approximately two million it employs, as well as, for the clients and end investors that depend on it to manage US$100 trillion in assets, according to the study.