Global financial services sector faces difficult road ahead: report

“Our industry is at an inflection point, where success or failure hangs in the balance,” says Paul Smith, president and CEO of CFA Institute, in a statement. “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.”

Clients have come to increasingly expect the industry establishment to provide them with “personalized, simple and speedy products” — experiences that have become synonymous with financial technology (a.k.a. fintech) firms, the report notes.

As such, the industry is ripe for consolidation, with as many as 84% of investment management professionals surveyed saying that they expect fewer players competing in the years ahead as firms make the transition to “lower-cost, higher-tech investment solutions” and margins shrink.

In fact, 63% of those surveyed say they expect asset-management firms’ profits to stay flat or contract as active management continues to fall out of favour among investors.

“Fees have to come down … because of the discrediting of active management,” says a CEO of an asset-management firm quoted in the report. “In a couple of decades, we will be left with only one or two dozen players that will probably dictate the terms.”

In the face of that pressure, the report notes there’s a great need for soft skills, which can’t be replicated through artificial intelligence.

“Soft skills such as creativity, empathy and negotiating complex situations will become increasingly important,” says Roger Urwin, co-author of the report and chairman of CFA’s future of finance advisory council, in a statement.

For example, having a leader who can “articulate a vision” that charts the way forward topped the list of skills CEOs need, with 61% in North America and 46% in Europe saying it was one of the most important skills.

Even as the ability to “instill a culture of ethical decision-making” ranks second in the list of most-valued skills, this is one area of particular challenge for the industry. About 42% of those surveyed saying that there’s a shortage of talent in the marketplace for this skill.

Read: The new paradigm of financial advice

Trust remains a long-standing issue in the financial services sector, especially relative to other industries, the report notes. (It ranks ninth out of 12 sectors, according to latest figures collected through the Edelman trust barometer.)

For established players in this business to hold their own against the rise of new players, the report notes, advisors have to do more to foster trust with their clients by adopting a “fiduciary mindset” and making their own values known.

There’s also recognition that new technologies aren’t just poised to disrupt the financial ecosystem, but it will also change how regulators pursue fraudulent advisors. Big data and machine intelligence, the report notes, may soon empower regulators to better scrutinize trading activity and regulatory filings — making them less reliant on whistleblowers and auditors to wave the red flag.

Although automation threatens to displace scores of investment professionals, the report notes that firms will need to fill their ranks with experts who have a background in science, math, engineering and information technology.

The financial CEO of the future, the report says, may be one that has both the business acumen and the technical know-how needed to understand how the models applied to their portfolios work — even if the latter skill doesn’t shape their day-to-day responsibilities.

The survey, which was undertaken from Dec. 8–22, 2016, sampled 1,145 investment management professionals. About 644 of those surveyed were CFA Institute members. To add further context, supplementary interviews with 19 industry executives were conducted.

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