Adapting to a New Reality: Investment Firms of the Future


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Adapting to a New Reality: Investment Firms of the Future

Shifting cultural norms and quantum leaps in technology are accelerating change in the investment management industry. Firms that choose not to adapt by taking a client-first approach are “picking up pennies in front of a steamroller,” says Richard Brandweiner, CFA.

Brandweiner, CEO of Pendal Group, Australia, and former CIO of First State Super, one of Australia’s largest superannuation funds, was on hand at the 71st CFA Institute Annual Conference to discuss many of the findings of the just-released “Investment Firm of the Future” report with Virginie Maisonneuve, CFA, and Roger Urwin, FSIP, all collaborators on the CFA Institute Future of Finance initiative. Based on a survey of over 2,500 investment management professionals, the report builds on foundational research from an earlier study, “Future State of the Investment Profession,” and prescribes the shifts investment firms will need to make to ensure survival and success over the next decade.

Urwin, global head of investment content at Willis Towers Watson, set the tone for the discussion by quoting former GE chairman and CEO Jack Welch, who once said, “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” This sense of urgency underscored much of the conversation, as did the call for the investment profession to switch its focus from gathering assets to client outcomes.

The investment firm of the future will need to address disruption brought on by the fintech revolution; navigate client preferences that differ by geography, generation, and social network; manage portfolios in a slow-growth, low-rate environment marked by political unrest; and adjust to an era of “purposeful capitalism” that embraces a greater sense of professionalism and a stronger commitment to the interests of society at large.

Maisonneuve, chief investment officer at Eastspring Investments, expects technology, specifically artificial intelligence, to force a “brutal Darwinism” on the asset management industry in the coming decade. She posited that only those firms that foster a culture of innovation and measured risk-taking will thrive. Urwin added, “There will be winners and losers over the next decade. We’ve been part of a rising tide. That tide will no longer be rising. You’ll see those firms that have got technology and culture right soaking up firms that haven’t.”

Urwin and his colleagues further considered a range of narratives they expect to unfold within the industry that will shape firms’ futures. The entire spectrum of investment firm functions, from business model to investment model to distribution model, will be impacted by way of lower margins, greater demand for sustainable investing, and the exploitation of new technologies. And yet while passive investing is expected to continue to capture market share and pinch fees, and regulations and standards are anticipated to tighten, there exist many opportunities for the industry to build a more enduring, client-centric business. Doing so would go a long way toward restoring trust in our profession but will also require that investment firms make the following critical shifts:

  • Demonstrate organizational agility and culture: Firms need to read and adapt to the new industry landscape, and build a culture focused on achieving client outcomes.
  • Differentiate their operating model: Firms must exploit technology and develop it into a comparative advantage.
  • Build greater collective intelligence: Firms need to construct teams with a diverse mix of skills and perspectives.
  • Streamline investment models: Firms must focus on the control and delivery of client outcomes and emphasize investment solutions aligned to those outcomes.
  • Increase engagement with clients: Firms need to better identify individual client needs, manage to their desired outcomes, and establish greater levels of trust.

Urwin described the choice for asset managers as a “fork in the road,” making it clear that those firms that didn’t adjust to the changing landscape will likely be doomed.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/ Chaliya

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