CFA Report Reveals Investment Industry at Turning Point

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.”

For more stories like this, sign up for the CIO Alert newsletter. 

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

New York City Comptroller Scott Stringer had some harsh words for US. Senate Republicans who voted to reverse a Department of Labor (DOL) rule that allowed cities and counties to organize retirement savings accounts for workers who have no access to retirement plans.

“Republicans in the Senate just voted to make it harder for Americans to save for retirement,” said Stringer in a statement. “This vote was an active, willful attempt to undermine the economic security of Americans.”

By a vote of 50-49, the Senate voted to overturn the US DOL’s rule “Savings Arrangements Established by State Political Subdivisions for Non-Governmental Employees.” The rule allowed cities to expand access to retirement savings plans to private-sector workers.

In August, the DOL adopted a rule under which states could design and operate payroll deduction individual retirement account (IRA) savings plans, including automatic enrollment, for private-sector employees without establishing a pension plan under the Employee Retirement Income Security Act of 1974 (ERISA).

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

According to The New School’s Schwartz Center for Economic Policy Analysis, 1.5 million, or 58%, of all full- and part-time private sector workers in New York City between the ages of 25 and 64 are uncovered and/or ineligible for a pension, 401(k), or other retirement plan.

“Every New Yorker and every American should be able to save for a lifetime,” said Stringer. “But instead of lifting them up, Republicans in the Senate have sold out hardworking families who want to have secure retirements.”

The vote came under the Congressional Review Act of 1996, which established fast-track procedures that allows Congress to disapprove regulatory rules issued by federal agencies. To qualify for expedited consideration, a disapproval resolution must be submitted within 60 days after Congress receives the rule.

The current Congressional Review Act window applies to any significant Obama administration rule that was either finalized or made effective after June 13, 2016. Because the DOL’s city and county plan rule was finalized in December 2016, and became effective in January 2017, both rules fall within the current Congressional Review Act window.

The White House is expected to approve the legislation, and has already expressed its support for it. It said in a statement in March that the Labor Department rules had allowed “a new type of state-based retirement plan that would lack important federal protections.”

By Michael Katz