What does the future hold for investment management? Predictions around growth, challenges, and the next big thing Investment Management research leader, Deloitte Services LPThe Deloitte Center for Financial Services launches its sector outlooks for the coming year every January. We reflect on the past year, and look forward to the industry’s future. As anyone who has tried to predict the future knows, this practice is fraught with peril. Despite the insights gained from clients across the investment management space, the vast volume of data analyzed, and the consumption of reams of news stories, it is still an incredible challenge to distill what the future holds for investment managers. However, we feel that we have captured a solid picture of the coming year and I am excited to share highlights from our series of three 2015 outlooks for the investment management industry.
The raison d’etre of investment managers is to manage assets, so it naturally follows that managers of all stripes are continually on the lookout for new opportunities to do so. In 2015, investment managers are expected to continue to launch new products into existing distribution channels, enter new distribution channels, as well as continue to expand in global markets.Alternative managers are expected to keep targeting nontraditional customers including retail investors with liquid alternatives and business development companies. One of the most intriguing product opportunities for 2015 will be around exchange traded products. The U.S. Securities and Exchange Commission (SEC) approved one active exchange traded managed fund design, while rejecting other product designs, but there is much more to come in this area.
It is also likely that there will be substantial activity targeting the defined contribution investment-only marketplace. We expect that alternative investments will become more prevalent in the market, likely within target-date funds. We also expect the recent Department of Labor (DOL) and Treasury guidance on guaranteed retirement income to stimulate product development activity.
Technology will become more prevalent in distribution with managers continuing to upgrade customer relationship management systems and beginning to use data and analytics more extensively to target brokers, advisors, and investors effectively.It seems that almost every investment manager has a global presence and this is likely to continue in 2015. Some opportunities are in established markets, such as the EU, particularly in the form of distressed real estate, while others are in more emerging markets such as Latin America. The bottom line is that world continues to shrink from an investing standpoint and managers are exploring every corner of the world to gather assets and identify interesting investment opportunities.
Regulatory and risk management will once again be major focus areas. From a regulatory standpoint, there are several unknowns still floating around, such as the outcome of the fiduciary rule from the DOL and SEC. Regulators around the world are zoning in on conflicts of interest. We expect to see continued enforcement action around this in 2015 and, in response, many managers will be extensively reviewing their conflicts policies and procedures. From a risk standpoint, cybersecurity will be a major issue in the coming year. Many managers are already focused on cyber, but the threat continues to increase and much work remains.The focus on risk management is also a major factor in the private wealth space. The single-family office is expected to continue to evolve from operating like a small family businesses to a regulated investment advisor. This will happen in the form of updated governance structures, based on family mission statements, with a major focus on risk management and controls. A key driver of this effort is keeping the reputation and privacy of the family intact and ensuring that the long-term goals of the family are met.
I believe that the investment managers that finally figure out the retirement income market have a chance for a long run of increased assets and revenue. I also believe the solution includes a product angle, such as the insurance-linked investment products, mentioned above, but that the real solution will also lie in the services around the product. This is likely to include the extension of behavioral finance concepts into the retail investing market and the embracing of technology to offer more efficient planning and advice platforms used by advisors and consumers.