What is the future of work in the investment industry? How do we, as providers of human capital prepare for the evolution of this profession? What does it mean for employers seeking to engage and motivate staff over the long term?
It is widely accepted that, like most other industries, the financial services industry is in a state of flux. Unlike other episodes of change in recent decades, the current context is often characterised as an “industrial revolution” creating continual disruption of a structural nature.
Prepare not predict
On that backdrop, the prudent approach is to prepare, not predict. Instead of making point-predictions about the future state of the industry, a handful of thematic narratives might be useful as navigational guide-posts.
- For example, it is safe to assume that technology disruption (“fintech”) will challenge virtually every aspect of the existing service delivery model.
- Secondly, changes in the delivery model will likely take place at an uneven pace across the geographies of developed and emerging markets.
- Thirdly, interest rates are likely to remain lower for longer. The benchmark ten-year US treasury rate, which used to average close to six per cent before the global financial crisis, now struggles to sustain above three per cent.
- And finally, there is a secular drive towards a more purposeful capitalism, requiring the investment profession to be demonstrably more client-centric and proficient about sustainability factors.
Who do we mean when we refer to the investment professional?
There are at least three categories of roles in the value-chain. There are “asset owners” who act as principal fiduciary investors of capital. Secondly, there are “asset managers” who are fiduciary investors as agents. Thirdly, there are specialist intermediaries such as investment bankers, traders and sell-side analysts who provide investment products and services. It helps to zoom out and think of almost every role at this level of generality as the specific bundle of tasks and boundaries between them will shift. Ultimately, everyone plays a part in either asset allocation or execution.
Looking to the future, the first observation is that the job environment is getting competitive at an increasingly rapid pace. The pool of candidates for any job — many of them armed with credentials such as a CFA charter — is now truly global. CFA exam candidates have grown at an annual rate of 18 per cent over the past three years (faster in Asia-Pacific) with a current stock of candidates at over 300,000. At the same time, the required headcount for existing roles in existing firms will likely shrink as a result of technology.
In addition, there is a relentless downward pressure on fees. Consolidation by firms attempting to lower costs may negatively impact headcount. Fifty four per cent of respondents to a CFA survey last year cited “fee pressure” or “switching to lower-fee products” as the number one issue facing investment firms in the next five to ten years. As a result, individuals have to choose between competing in intensely contested “red oceans” or prepare for less contested “blue oceans”.
HI + AI: ‘human plus artificial’ intelligence
These blue ocean roles are likely to straddle human plus artificial intelligence. In these “HI + AI” setups, human heuristics would benefit from the multiplier effect of data analytics. Within firms, investment and technology teams (that previously worked in silos) would collaborate to enhance performance.
In the early days of electronic foreign exchange dealing, online trading venues were seen as an alternative to the phone. Instead of calling her dealer, the asset manager could hit a button to execute her trade. The trade was still processed and risk-managed by a traditional (human) trader. In recent years, online trading venues have become an alternative to the trader. Once the asset manager hits the button to execute, the trade is processed largely by algorithms. The exact boundary between human and machine evolved gradually and through trial and error over almost a decade. Unfortunately, the current context of cost pressure and rapid technological progress will not allow the luxury of finding the right handover point at an organic pace. Today, the drive for organisational efficiency leaves less room for experimentation, and optionality to see how things pan out.
This will place the burden of adaptation disproportionately on the employee.
The growth of machine learning, AI methods and use of alternative data for portfolio construction will increasingly require ambidextrous skills – technical and traditional – to be deployed side by side. The question for the investment professional is not whether she can hand over tasks to robots but whether she can interact with robots through feedback loops. Traders of illiquid asset-classes will need to combine intuitive intervention with auto-pilot technology. The human elements of ethical orientation, communication, empathy, tacit knowledge etc. will remain relevant. However, the traditional bifurcation of “relationship roles” from “technical roles” will probably not survive.
A ‘Marina Bay Sands’-shaped skills profile
We cannot rely on any one skill for ever. Gone are the days when a person who started as a trader of precious metals could retire in the same role thirty years later. What is required is a T-shaped profile of skills where core expertise in one domain is supplemented by a breadth of knowledge over a wide range. Perhaps more than a T-shape, what is required is a “Marina Bay Sands” -shaped skills profile that rests on more than one core domain!
Marina Bay Sands (Singapore) is an integrated resort, casino, shopping mall and museum designed by Israeli-Canadian architect Moshe Safdie. Photo by Michaela Loheit, under a CC-BY-ND-2.0 licence
Skills acquisition will need to be approached in a similar manner to strategic asset allocation across a basket of skills with the ability to tactically adjust between them. The range and combination of possible skills is vast: from soft skills, design-thinking and systems-thinking to data interpretation, data visualisation, factor investing, portfolio risk optimisation, sustainability, governance issues and alternative investments.
Connectors, communicators and collaborators will command a premium. Those who are able to bridge traditional divides of offline versus online, quantitative versus relationship savvy, public versus private markets, profitability metrics versus sustainability and stewardship goals, will differentiate themselves.
T-shaped professionals will also enable firms to benefit from diversity. Diverse teams not only facilitate the uncovering of novel sources of value-creation, they also help thwart risk events lurking in potential blind-spots.
However, diversity can remain dormant and un-utilised if inclusion is not actively pursued through organisational design. It is the depth and range of abilities amongst professional staff that determine the extent to which diversity can translate into collective, firm-level intelligence. This calls for more T-shaped professionals who have the ability to forge connections, gain understanding and form perspective. They will also need to deal with complexity, ambiguity and incessant change without getting motion sickness.
From the employer’s perspective, it is important to deliberately foster a culture of collaboration. Teams of IT specialists and relationship managers may have different styles of work, terminology and rhythm. In the absence of deliberate processes that facilitate collaboration, including the tone at the top, firms can easily end up with coordination failures. This can be particularly challenging if the legacy culture relied on “star performers” and compensation plans incentivised lone wolfs. It is often seen that an accent on diversity – gender, ethnic and age diversity – can become a source of positive organisational culture overall.
A career flywheel
From an employee’s perspective, career management requires an explicit strategy for skills management. It is helpful to think of it as a “career flywheel”. Popularised by his book “Good to Great”, Jim Collins describes the flywheel effect as a process of incremental transition as opposed to a single defining action. That process resembles relentlessly pushing a giant heavy flywheel turn upon turn, building momentum towards points of breakthrough and beyond. The investment professional of the future will need to plan her career like the turns of a flywheel, with intentionality and additionality. Their explicit personal development plan will need to be agreed openly with the employer.
From an employer’s perspective, career growth must allow for horizontal moves across functions and locations, not just progression on a vertical ladder. This will not only help with employee engagement, it will also enrich the set of experiences that the employee can bring to bear on the inherently volatile nature of the job.
Finally, employee engagement and motivation will be sustained by non-monetary factors that include not just learning opportunities or flexible work practices but also a direct link to organisational purpose and impact on society. Purpose needs to be felt through the rump of the organisation – beyond just the CSR department – with consistency between words and action. Communication must feel authentic and not be laden with jargon.
- This blog post appeared first on The Business Times, Singapore. It is based on work done by CFA Future of Finance, where the author is a member of the content council.
- The post gives the views of its author, not the position of LSE Business Review or the London School of Economics.
- Featured image by geralt, under a Pixabay licence
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Lutfey Siddiqi is a visiting professor-in-practice at LSE’s Centre for International Studies. He is also an adjunct professor at the National University of Singapore’s Risk Management Institute (RMI), having been a part-time member of the faculty since its inception. Previously a managing director and member of the global executive committee for foreign exchange, rates and credit at UBS investment bank, Lutfey is a member of the World Economic Forum Council on Financing and Infrastructure, the Bretton Woods Committee, the advisory board of the Systemic Risk Centre at LSE and of the Official Monetary and Financial Institutions Forum (OMFIF), the forum for central banks.