September 27, 2023

Global issues, ESG investing, technology and inflation are shaping the future of investing, and financial advisors and portfolio managers must meet those challenges moving forward.

This is the main conclusion First report released earlier this month By CFA Institute New Research and Policy Center And it was called “the future state of the investment industry”. A half-dozen authors from the institute – a global association of investment professionals that oversees the standards of the Chartered Financial Analyst designation held by 200,000 certificants worldwide – presented the challenges facing the industry after surveying more than 3,000 members late last year. Four main themes were identified. Forum discussion on the future of the region. They are: “Different worlds, sustainable finance, digital transformation and the end of cheap money.”

Research followed the increasing prevalence of analysis pointing to Investor interest level in alternative products is increasingneed of Greater use of model portfolio, Concern about speed of regulation and increase strength A few companies dominate the rapidly growing industry., In a webinar session with the media, CFA Institute Chief Economist Andrés Vinelli explained how the main trends made notable contrasts with those a similar report Six years ago from an organization tracking the forces influencing the future of the industry.

For example, the “significant implications” of foreign affairs affected by pandemics, war, inequality and demographic change include “the need to focus on harmonizing different rules and market structures in different jurisdictions as the world is divided into different spheres of influence” ,” Vinelli said. inflation has increased raised money-market yields He said this could result in “a reduced appetite for risk and leverage in global portfolios”. In ESG terms, investors show “very high appetite” for integration Environmental and Social Impact in their portfolio, but also have “a good level of responsiveness” against those methodsVinelli said.

“The industry will now be able to personalize its thinking about providing solutions to people in finance and portfolio construction in a more personalized way than ever before,” Vinelli said of the impact of digital tools on investing. “This has many implications about talent in industry and human capital. We look at it in terms of skills around coding, skills around analysis of non-traditional data, familiarity with artificial intelligence, trying something new, and propensity to fail. We see mismatches in skills, but increasingly failing. Those are going to be the key components that organizations will need in the industry over the next five to 10 years. So as a result of all these scenarios, we see a more fragmented industry that puts value highly. “Tailored to the specific customer in a more fragmented world.”

The institute’s report recommends that investment managers and professionals in the industry should use that expertise, along with other advice, to close those skills gaps. Firms and professionals should adopt “a multistakeholder business model centered on purpose and linked to a fiduciary mindset”, seek out “opportunities brought by new technologies and data” and ensure they are “aligned between finance, data science and sustainability”. Understand the interrelationships of “agile in the emerging industry landscape,” according to the report,

The report concluded, “Together, these trends point to a much greater market segmentation situation in the future, with more diverse opportunities for companies.” “Instead of trying to be ‘one product for all’ in their product offering, companies can move toward the adage of ‘one product for everyone,’ with each customer expecting personalization. In the broader industry, larger companies “Large-scale companies will apply advanced technologies, and smaller companies will operate in more specialized and focused product areas. Through more sophisticated investment products, the industry can provide greater customer value and satisfaction.”

The findings reminded Andy Finnegan, head of marketing at Global Investment Managers GMO’s “Nebo” Portfolio Design PlatformThat means “needs-based customization,” he said in an email, taking into account personalization, technology and the importance of focusing on customer needs. nabo over $1 billion into the property earlier this month, just one year after its launch.

“We believe the future of financial advice is to align the plan with the portfolio. Today, most assets are outsourced into cookie-cutter portfolios, where risk is based on volatility and not linked to financial planning. As a result, advisors lack confidence that their clients are in the right portfolio,” Finnegan said. “In the future, we think all advisors will build one-of-a-kind portfolios for each client, including a custom asset allocation designed to meet their specific goals.”

Vinelli pointed out Example of direct indexing In which “people can effectively alter portfolios in a way that is right for them, not only in terms of performance, but taking into account their specific preferences and realities as individuals.”

Despite huge increase in wealth flows into private debt instruments and private equity funds, Vinelli predicted that “the sector is likely to improve as non-bank financial institutions receive more scrutiny.” Stocks and bonds may face more years of their historically poor performance in 2022.

“Investors, leaders and professionals should really prepare themselves for greater volatility and greater complexity in this new era,” Vinelli said. “I think this translates into significant opportunities to serve customers and stakeholders. And companies’ ability to deftly navigate these waters will determine their success over the next five to 10 years.”


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