Investment Professional of the Future

Investment Professional of the Future

Trends Influencing the Future of the Investment Profession


Key Concept

  • World of Work:

    We define the world of work as overall workplace features, roles and skills, work methods, and compensation and incentives.

Some broad-based trends are influencing the world of work within the investment management industry globally. We define the world of work as overall workplace features, roles and skills, work methods, and compensation and incentives. Among the industry leaders surveyed, 77% expect the investment industry world of work to change more in the next 10 years than it did in the last 10 years. Furthermore, industry leader respondents predict that technological innovation and disruption are the trends likely to have the greatest impact on professional roles in the near future.

Influences suggested in the fintech disruption scenario are already affecting professional roles as firms use algorithms, artificial intelligence, and alternative data to perform more complex technical tasks. This trend is significant everywhere but is most pronounced in Asia Pacific, where development and integration of new technologies is highest, as illustrated in Exhibit 9. These regional differences prompt an interesting thought experiment of whether the industry in aggregate is more likely to look like Asia Pacific or other regions and whether differences will increase between regions over time.

Exhibit 9

Of the sources of potential disruption and future change listed below, which industry-specific factors do you believe will drive changes in the roles of investment professionals the most in the next 5–10 years? (percent of people ranking each first)

⟨  Swipe  ⟩
Global Americas APAC EMEA
The growth of machine learning, AI methods, and use of alternative data for portfolio construction 35% 26% 48% 39%
The appetite for solutions investing and integrating greater client/customer needs 31% 41% 15% 30%
The growth of sustainability factors in investing and stewardship roles 14% 11% 15% 17%
The growth of private market investing—investing and governance 10% 6% 19% 11%
The growth of rules-based investing including passive 9% 17% 4% 2%

Key Concept

  • AI :

    Artificial intelligence
  • HI :

    Human intelligence
  • AI + HI :

    Interaction of artificial intelligence (AI) and human intelligence (HI)

The growth of machine learning, other AI methods, and use of alternative data for portfolio construction

In Investment Firm of the Future (see narratives 7 and 9), 21% of CFA Institute member respondents said that their firm’s top tech priority is the use of machine learning technologies in portfolio construction.v The integration of artificial intelligence will create a spectrum from people doing routine and creative tasks supported by machine intelligence (e.g., hiring investment professionals) all the way through to autonomous machines completing creative tasks (e.g., trading strategies). Within that spectrum lies a number of people-plus-technology models. In this report, we use the shorthand AI+HI to denote the interaction of artificial intelligence (AI) and human intelligence (HI). For certain interactions, the combined model adds more value than either component alone because it leverages the benefits of both, instead of technology obscuring the favorable human elements. We cite ethical orientation, transparency, communication, empathy, tacit knowledge, and trust interaction as the key human elements that technology cannot (yet) reproduce.

Technology enhancing client relationships and engagement

Technology is also changing many aspects of the professional–client relationship and affecting requisite relationship management skills. Platforms for investment products and services can now deliver better customer engagement and provide better insights (by harnessing data) into customer preferences and needs. As a result, client-facing investment professionals will need to be more comfortable working with technology and can be more data driven in their reporting to clients and recommendations for clients (see Investment Firm of the Future, narratives 25 and 26).vi

Appetite for solutions investing and integrating greater client needs

Another significant trend, particularly in the Americas and EMEA, is an increased interest in solutions investing that stems from and requires a greater customer orientation. It will affect all aspects of the professional–client relationship, including leveraging technology and data, better understanding and engaging customers, and tailoring and implementing portfolio construction based on client needs. Meanwhile, there is a desire from end investors for investment products and services that evolve and deliver unique investor-directed outcomes. Increased product personalization and customization, combined with a requirement for a broader complement of services, will require a broader skillset and education base for investment management professionals (see Investment Firm of the Future, narrative 11).vii

The growth of sustainability factors in investing and stewardship roles

The challenge of short termism, in which current results are put ahead of long-term client value, could be reduced if firms and their employees were to focus increased attention on organizational value systems that include trustworthiness, ethics, communication, and transparency. An increased focus on sustainability will require training in ESG (environmental, social, and governance) analytics and stewardship to develop on a wider basis. This is another area that varies based on region, with fewer in the Americas saying it will drive change in roles. In the Investment Firm of the Future survey, 72% of all respondents globally expect their firm’s commitment to the research of ESG and sustainability issues to be higher in the next 5–10 years, but only 20% say it will be significantly higher (see Investment Firm of the Future, narrative 22).viii

The growth of private market investing—investing and governance

Future State of the Investment Profession summarizes the trend as follows: “The traditional active management community shrinks in size, but active management still flourishes in evolved form.” These active management skills are being applied to the less liquid parts of the market, while at the same time, institutional investors look to private markets for higher return expectations. As a result, professionals will be required to gain skills considered outside of traditional investing fundamentals (see Investment Firm of the Future, narratives 19 and 21).ix

More detail about the growth of private markets can be found in the 2018 CFA Institute report Capital Formation: The Evolving Role of Public and Private Markets, which notes this trend is most pronounced in the United States: “It had 14% fewer exchange-listed firms in 2012 than it did in 1975… From 1996—the peak year of listed firms—to 2012, the number of listed firms dropped by half.”x

Most projections suggest that as a proportion of invested assets, private assets are likely to increase moderately from approximately 15% now to 20% in the next decade; from a growth perspective, this will be impressive incremental change, but private assets are unlikely to approach more than a quarter of all invested assets. Governance challenges and the lower levels of transparency in private assets are limits to its expansion, although we note that updates to the Global Investment Performance Standards (GIPS®) in 2020 will address some of these areas of opacity.

Growth of rules-based investing, including passive

The sustained and growing interest in passive and rules-based strategies is likely to influence innovation in products and services and the skills needed to develop and distribute them. In our discussion groups, however, most people focused on the growth of passive investing specifically and thought that its impact on roles has already been seen, so they expect less disruption or surprise in this area, especially compared with the impact of other factors, such as AI and machine learning.

There are two additional trends of great significance to note.

Industry consolidation and profitability challenges

Downward pressure on fees and a view of costs as an unacceptable drag on returns leads to investments in low-cost, high-tech investment solutions that perform an ever-growing array of fundamental investment tasks. This evolution and consolidation by firms attempting to lower costs through increased scale may significantly affect job roles. In Investment Firm of the Future, we reported that 54% of survey respondents cited “fee pressures” or “switching to lower-fee products” as the number one issue facing investment firms in the next 5–10 years (see Investment Firm of the Future, narrative 1).xi Investment professionals must increasingly look at the viability of their employers’ business model as they manage their careers.

Key Concept

  • T-Shaped People/Teams:

    A combination of (1) deep knowledge in a single field or part of the ecosystem and wider knowledge in other fields or other parts of the ecosystem and (2) the competencies to connect them

Effective decision making through diversity and collective intelligence

Teams, committees, informal groups, and boards rely on the socialization and governance attached to decisions, but biases limit the effectiveness of these group decisions. Bias and groupthink can be reduced through greater group diversity and collective intelligence. Solutions for increasing collective intelligence and cognitive diversity hinge on the ability of firms to deepen the range and adaptiveness of their professionals’ skills. This calls for more “T-shaped professionals”—those who have both domain-specific specialist knowledge and wider professional connections, understanding, and perspective (see Investment Firm of the Future, narratives 13 and 14).xii