Continued economic uncertainty will be the key business driver impacting the global securities and investments industry this year, according to a new series of TowerGroup research reports examining trends for 2008.

As firms begin the year, the industry will continue to see upheaval as market structure further evolves, trading volumes spike, and alternative investments continue their torrid growth – despite the difficulties brought on by the subprime crisis. TowerGroup finds that the industry will also be strongly impacted by the changing needs of different demographic segments–emerging generations of investors and employees.

In order for institutions to effectively address these issues, TowerGroup expects securities and investments firms to focus on the following: improving risk management capabilities; formulating a stronger IT governance strategy; developing real-time capacity and performance plans; increasing the use of derivatives; and exploiting new opportunities in emerging markets.

“The global securities and investments industry must continue adapting to a fast-changing environment, including grappling with the ongoing fallout of the subprime crisis and associated write-downs,” said Rob Hegarty, managing director of TowerGroup’s securities and investments practice. “The prior year served as a needed wake-up call for the industry and the firms best positioned for this adversity will benefit in 2008.”

The report lays out three critical business drivers that securities firms must both manage and take advantage of in order to remain competitive in the coming year: ever-evolving market structure; globalization; and the continued growth of electronic markets. Firms that do not embrace electronic trading will increasingly fall by the wayside, says the research.

Derivatives and hedge funds will remain two hot areas to watch, given the revenue potential they offer and the hedge they provide in the face of a credit crunch.

TowerGroup expects sell-side firms to invest in technology projects ranging from enhanced electronic trading tools to systems for global risk modeling. Without these IT initiatives, broker-dealers will be unable to provide the core services that ever more sophisticated clients expect.

According the reports, generating investment performance in an environment of fragmented liquidity will be a lasting challenge for asset managers, impacting how data is used in tandem with front-office trading tools. The credit crunch will force the industry to further focus on portfolio and operational risk management, pushing firms to balance strategic vision with effective operational execution.

In terms of wealth management, TowerGroup expects firms to make a conscious effort to embrace the client relationship as the key to a successful wealth management strategy. Firms will work to loosen the stranglehold of products on investors and highlight how the ongoing interaction between the advisor and the client is an important factor in achieving investment goals.