The most significant changes in the financial industry will be driven by fintech innovations such as blockchain, artificial intelligence, and machine learning, because they can identify opportunities that are currently inaccessible, said Bjorn Forfang, deputy chief executive officer at the CFA Institute, on March 6, 2018, at the conference “The Future of the Financial Profession in a Changing Investment Industry.”
At the event, which was part of the Management and Business Lecture Series organized by the Graduate School of the Faculty of Administration and Social Sciences, the expert spoke about current trends in the financial market, the transformations that will occur in the future, and the ethical changes the industry must make.
From active management to passive management
“Currently, people are choosing to shift their investments from actively managed funds to passively managed funds,” Forfang said. In other words, instead of investing in products designed to outperform the market, more and more investors are turning to index funds that track the market’s performance.
However, according to the expert, there is a limit to how much passive management can be used: “The shift is occurring because asset managers are not generating value for investors, so investment in passive management will continue to grow. Yet an investment portfolio should have room for both,” he explained.
Therefore, according to the speaker, rather than investing in active management, the public will increasingly opt for quantitative investment strategies—typically managed by highly specialized teams using passive management—that rely on models designed to significantly outperform the market.
Changes to the business model
According to Forfang, there will be a significant shift in the business model of these firms, with large investment management firms increasingly coexisting alongside those specializing in niche markets. However, the companies in the middle—those that handle many aspects but are not large enough—are the ones that will fall by the wayside.
“The industry’s mediocre players will be exposed by the volatility the financial sector will face,” he said.
For a more ethical industry
The most significant changes will come from new financial technologies (fintech) such as blockchain, artificial intelligence, and machine learning, because they have the ability to identify investment opportunities that are currently inaccessible. Blockchain, for example, enables transactions and investment activities to be conducted with greater security thanks to the sophisticated technology that underpins it.
“Today, millennials prefer to back tech companies rather than invest in traditional firms because they trust them more,” said the speaker, adding, “The financial industry has a bad reputation due to its past ethical failings. That’s something that needs to change.”
This situation is particularly acute in Latin America, Forfang said. For this reason, financial advisory services are here to stay, which means that financial specialists must acquire a high level of expertise and receive training in ethical standards so that trust in the sector can be restored.
“We need to build an industry with stronger values and ethics. We need to work more professionally to connect ideas with capital,” he concluded.
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