Now, more than ever, the millions of people working in financial services globally are uncertain about their future. Traditional practices and business models are being disrupted while interested observers are left wondering how it will all unfold.
The following six major trends are at the centre of the countless debates and predictions, and investment professionals should have them in mind while we’re all trying to make sense of the future for financial services.
1. Increasing consolidation, decreasing profits:
The whole industry is steeling itself for declining profit margins — advisory fees are getting pushed down and institutional investors are bringing their investment management in-house. Major and mid-sized industry players are all looking for the next pivot by changing business models, hiring more specialists, and adding technology to position themselves for the future. Will consolidation continue as traditional business models get squeezed?
2. Unstoppable fintech:
Even though it feels like technology has already brought big changes, its potential is just beginning to unfold. It has already put investment decisions into the hands of individual investors, and the next steps could open the world of asset management to tech giants with vast Artificial Intelligence resources. The biggest opportunities may lie not in using technology to replace human intelligence, but in applying artificial intelligence to augment it.
3. Passive investing isn’t going away:
The increasing popularity of passive investment vehicles has led some to predict “the end of active management.” Meanwhile, others claim that increasing market volatility offers some of the best opportunities to generate returns through active management. Passive funds accounted for about 20% of all fund investments in 2017. Will they continue to reshape the entire investment industry?
4. Growth of Asian financial markets:
According to a PwC forecast, Asian assets under management will grow 145% to reach US $29.6 trillion by 2025, far outpacing growth in other regions. Much of that expansion will centre on China, particularly if the Chinese government opens the asset-management industry to foreign investors and the country’s massive pension assets shift from banks and bonds to seek better returns elsewhere. Among investment professionals, Asia-focused specialists stand to benefit.
5. Social responsibility no longer just a buzzword:
Environmental, social, and governance considerations may cease being distinct concerns. They could become an integrated part of the investment decision-making process. Meanwhile, under-representation of women in the investment industry’s upper echelons has been a persistent problem; the pursuit of greater diversity will be one of the industry’s most important challenges.
6. Rebuilding trust and credibility:
After repeated, high-profile scandals have destroyed firms’ reputations, industry leaders are waking up to the need to put investors first. Trust, credibility and principled investment are the new watchwords. In the words of Paul Smith, CFA, “The image of the investment professional who always prospers, whether the client sinks or swims, has got to change.”
Investment professionals will need to adapt to whatever the future may hold. Demand will grow for specialisation, such as financial analysis for specific sectors, countries, and regions. The ability to spot gaps in the market and develop the skills to fill them will be critical. As noted in the “Future State of the Investment Profession” report from the CFA Institute, the sustainability of the financial ecosystem is “dependent on the nature of the value delivered and the quality of trust between the end investor and the organisations involved”. If that can be delivered, then the rest will fall into place.