CFA Report Reveals Investment Industry at Turning Point

Report warns that investment industry leaders who fail to transform their business models may jeopardize their firms’ future.

A new report from the CFA Institute, a nonprofit association of investment professionals, depicts an investment management industry that is at a critical juncture, and is experiencing “major shifts” that will “likely result in significant change” over the next five to 10 years.

The report also found that the investment industry has not been as positive of a force for society as it could or should be.”

The report, titled “Future State of the Investment Profession,” compiled surveys from more than 1,100 investment management professionals. It also interviewed 19 executives in the investment management profession.

“This study clearly shows a critical need for investment firms to adapt more quickly to new conditions,” said Paul Smith, CEO of CFA Institute. “In many cases, organizations need to adopt transformational change as we enter a new global investment era.”

Some of the reports key findings include:

  • 84% expect industry consolidation
  • 73% expect environmental, social, and governance (ESG) factors will become more influential
  • 70% expect financial centers in the Asia Pacific region will become more influential
  • 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

The report also identified several relevant megatrends, including technological advances, redefined client preferences, new macroeconomic conditions, different regulatory regimes, and demographic shifts.

The report said the future is further complicated by issues that are specific to investment organizations, such as trends in digitization and commoditization, downward pressure on fees, pressures from sustainability, and new tech-centric business models, among other investment innovations.

The CFA recommended that asset owners, asset managers and investment intermediaries focus on the following areas:

  • Professional Transformation: Develop the mindset and practices by which the investment industry evolves into a professional status similar to law or medicine.
  • Fiduciary Implementation: Master the meaning of fiduciary in a way that can be effectively implemented despite inherent trade-offs and conflicts.
  • New Skills for New Circumstances: Find  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 Trust:  Create a culture and business model that aligns credibility and professionalism across a spectrum of critical attributes. 

“Our industry is at an inflection point, where success or failure hangs in the balance,” said Smith. “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.”

By Michael Katz