‘Human plus artificial’ intelligence: the future of work in the investment industry

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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.

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”.[…]