THE FUTURE OF THE INVESTMENT

MANAGEMENT INDUSTRY

Paul Smith, CFA

President & CEO, CFA Institute

CFA Society Tucson

February 11, 2019

OUR MISSION

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To lead the investment profession globally

by promoting the highest standards of ethics, education,

and professional excellence for the ultimate benefit of society.

GLOBAL INFLUENCE TODAY

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155 member societies

More than 163,000 members and 319,000 candidates

in more than 150 countries

AMERICAS

Members: 97,000

CFA Program Administrations: 88,000

60%

EUROPE, MIDDLE EAST,

AFRICA

Members: 35,000

CFA Program Administrations: 58,000

22%

ASIA PACIFIC

Members: 31,000

CFA Program Administrations:173,000

18%

Member data as of August 2018; CFA Program for FY18; numbers rounded

YOUR LOCAL COMMUNITY

Members: 51

FY18 CFA candidates: 39

CFA SOCIETY TUCSON

OUR STRATEGY AND OUTCOMES

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Business models geared toward achieving investor outcomes.

Delivering member value and advocacy through societies.

DEVELOP FUTURE PROFESSIONALS

Through relevant and accessible

credentialing programs.

High standards of entry and

professionalism.

DELIVER MEMBER VALUE

That accelerates the professional

success of our members.

Educated, ethical members at

the top of their profession.

BUILD MARKET INTEGRITY

That benefits investors and

our members that serve them.

Regulations that align

firms and clients.

ST

RA

TE

GY

OU

TC

OM

ES

The twin peaks of professionalism are Continuing Professional Development and Advocacy

A JOURNEY FROM CREDENTIAL

TO PROFESSION

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A common body of

knowledge that is

widely accepted

A code of ethics

with compliance

monitoring and

enforcement

Seal of approval

and authority

by society at large

Certification

that individuals

possess before

practicing

Dedication to

higher fiduciary

standards

Use of knowledge

for the public

good, not profit

maximization

Commitment to

professionalism

,

continuing

professional

development

CREDENTIAL PROFESSION

INDUSTRY LEADERSHIP

7www.cfainstitute.org

FINANCIAL SERVICES INDUSTRY RANKS

IN THE MIDDLE TIER FOR TRUST

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26%

30%

35%

40%

41%

44%

44%

44%

47%

50%

64%

Media

Government

Entertainment

Telecommunications

Energy

Automotive

Pharmaceuticals

Financial Services

Law

Food and Beverage

Technology

2018 Industry Trust Levels by Retail Investors

Source: CFA Institute, The Next Generation of Trust, 2018

WHY TRUST MATTERS

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➢ We believe the industry’s future is promising – If professionals embrace

trust and chart a course that better fulfills the industry’s purpose

➢ Trust is vital to a fiduciary industry that operates with asymmetry of

information

➢ It’s relatively easy to build trust and to demonstrate it via credibility and

professionalism

➢ Better outcomes are possible -- for the end investor, the industry, and

society – when trust is placed at the core of relationships

➢ If we succeed in building trust with our clients, we can build a

sustainable industry.

CHANGING PARADIGMS TO BUILD TRUST

Current Paradigm

-- Technical investing expertise

-- Product explosion and jargon

-- Technology platforms

-- Mine data

-- Increasing disconnect from human interactions

New Paradigm

-- Focus on our core purpose

-- Prove worth in areas that technology cannot replicate

-- Transparency builds trust

-- Be forward-looking

EIGHT STEPS TO INCREASE TRUST

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Adopt a code of conduct to reinforce your firm’s commitment to ethics

Maintain strong brand identity and follow-through on brand promises

Employ professionals with credentials from respected industry organizations

Stay focused on building a long-term track record to demonstrate competence

CREDIBILITY

PROFESSIONALISM

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1

2

3

Demonstrate your dedication to the values clients hold dear

Improve transparency and clarity regarding fees, security, and conflicts of interest

Use clear language to demonstrate that client interests come first

Showcase your ongoing professional development to improve investment knowledge

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5

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GAME CHANGERS FACING THE INDUSTRY

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OPENING UP OF ASSET MANAGEMENT

IN CHINA

DEVELOPING MIDDLE CLASS IN

INDIA AND AFRICA

FAILURE OF GLOBAL RETIREMENT SCHEMESCHANGING DEMOGRAPHICS:

WOMEN & MILLENNIALS

HOW FAR CAN INDEXATION GO?

FINTECH DISRUPTION OF

ASSET MANAGEMENT

AND PRODUCT DISTRIBUTION

CHANGING SKILL SETSINCREASING COMPLIANCE

AND REGULATION

ENVIRONMENT, SOCIAL, GOVERNANCE (ESG)

Fast Follower or Leader of the Pack?PUBLIC/PRIVATE MARKETS

CHANGE IS COMING

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Source: Investment Firm of the Future, 2018; survey of CFA Institute members

BUSINESS MODELS FACE PRESSURE

84% of investment leaders expect consolidation of

the industry in the next 5-10 years

70% expect investors will increase their allocations to

passive investment vehicles

52% of CFA charterholders surveyed expect

substantial or moderate contraction of profit

margins at asset management firms

57% expect institutional investors will reduce cost by

insourcing more investment management

activities

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Source: Future State of the Investment Profession, April 2017

IT’S BEEN A GOOD RUN, BUT...

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Source: Casey Quirk

THE FUTURE PATH?

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Source: Casey Quirk, Deloitte; McLagan

THE FUTURE PATH?

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• Top quartile performance

• Relative return

• Maximizing assets

NEW VALUE

PROPOSITIONS

• Security selection

• Public market exposure

• Product-driven sales

NEW

CAPABILITIES

• Share in hot products

• Operating efficiency

• Cost discipline

NEW VECTORS

OF GROWTH AND

PROFITABILITY

• Consistency at scale

• Outcomes

• Meeting liabilities

• Asset allocation

• Private market access

• Strategic partnerships and advice

• Winning unmanaged assets

• Operations Alpha

• Operating leverage

Source: McKinsey

NARRATIVES ABOUT THE INVESTMENT FIRM

OF THE FUTURE

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▪ Successful firms don’t dodge industry

realities

▪ Professionalism emerges as key business

driver

▪ The power of people plus automation

▪ The power of platforms and customisation

▪ Step-change in collective intelligence

▪ Firms evolving their cultural edge

▪ Traditional investment models overturned

▪ Sustainability embedded across industry

▪ Smarter client segmentation

▪ Technology engenders increased trust

Fintech DisruptionNew technologies promote new business

models; disruption and creative destruction are

endemic; challengers do better than incumbents;

major disruptions to the world of work

Parallel WorldsDifferent segments – by geography, generation

and social group – engage in society differently;

a higher baseline for financial services

participation with wider dispersion of product

preferences

Lower for LongerNew normal low interest rates and returns

become embedded for the foreseeable future

(five-ten years) accentuated by lower levels of

global growth and higher levels of political

instability

Purposeful CapitalismCapitalism’s way of working evolves; the

investment industry raises its game with more

professional, ethical and client-centric

organizations acting in aligned-to-purpose ways

Source: CFA Institute 2017 and 2018

SCENARIOS

NARRATIVES

BUSINESS

MODEL

OPERATING

MODEL

PEOPLE

MODEL

INVESTMENT

MODEL

DISTRIBUTION

MODEL

INVESTMENT PROFESSIONALS MUST ADAPT

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Investment professionals must adapt their models to two underlying types

of accelerating and disorienting change to succeed in the future environment:

Roles are adapted

• Explainers

• Data experts

Professionals adapt

• Soft skills

• T-shaped skills

• Growth mindset

• Brand and network

• Resilience

ADAPTIVE CHANGE

Old roles are replaced

by new technology

Growth of new data

science roles and

specializations

• Coders

• Data experts

• Machine learning

DESTRUCTIVE CHANGE

TO SUCCEED IN THE FUTURE...

CFA Institute

Source: Investment Firm of the Future, 2018

WHICH FUTURE WILL WE CHOOSE?

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Source: Future State of the Investment Profession, April 2017

FINANCE IS A HUMAN ACTIVITY

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There is a human being at the end of every transaction

We must have the humility to recognize past mistakes and correct them

Money needs to flow where risk and opportunity lie

Finance is a human activity – by recognizing this we can reconnect

with our clients and rebuild trust

CFA INSTITUTE UPDATES

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KEY ORGANIZATIONAL PRIORITIES

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Computer-Based

Testing

Continuing

Professional

Development

Technology and Delivery:

member app, new

website, etc.

Credentialing 2030

Societies 2.0

Continuing to Build Global

Brand

SOCIETIES 2.0 – FUTURE STATE

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Current State Future State

SOCIETIES

MEMBERS INSTITUTIONS MEMBERS INSTITUTIONS

PARTNERSHIP

PA

RT

NE

RS

HIP

ON

E

EX

PE

RIE

NC

E

SOCIETIESSOCIETIES

KEY COMPONENTS OF CREDENTIALING 2030

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Learning

Ecosystem

(LES)

Future of Exam

Delivery

(FED)

Continuing

Professional

Development

(CPD)

Specialist

Micro-Credentials

Multiple

Learning Paths

1

2

3

4

5

Integrated learning

experienceData analytics

Contemporary

instructional design

Candidate convenience,

accessibility, and serviceFidelity to practice

Risk management

and candidate growth

Integrated competency

framework based

on job role

CFA “platform” leads to

specialized and localized

learning through society

portal

Post-CFA refresher

and advanced

specialization

Member CPD (Refresher,

Industry Advances)

Non-member,

non-professional,

pre-professional

certificates or “stacks”

Derived from the

CFA Program

Recognize third-party

learning as partial

fulfillment

Examples: CIPM,

CMT, CAIA, CFP,

PRM, CIMA, CPWA,

CEIV, TAC

Smaller CBT

segments as credit

toward Level I

CONTINUING PROFESSIONAL

DEVELOPMENT EVOLUTION

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We are currently working on the next generation of our Continuing Professional

Development (CPD) framework by building out a competency model that can serve both

multiple career and learning paths. The future state of this framework will have

competencies organized by categories.

Localization and Regulation

Investment Concepts

Technical Skills

Ethics and Professionalism

Business and Soft Skills

WE MUST...

Set high standards of entry and professionalism

Create business models geared toward achieving investor outcomes

Advocate for regulations that align firms and clients

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BY EMBRACING THESE ACTIONS, WE AS AN INDUSTRY CAN CONTINUE TO EARN INVESTORS’ TRUST.

THANK YOU!