The 2018 Annual Investment Dinner provided the 800-plus attendees with a road map to the future. The exciting, interactive event featured two leaders of the asset management industry: Shelley O’Connor, managing director and co-head of wealth management at Morgan Stanley, and Mark Wiseman, global head of active equities at BlackRock and chairman of the firm’s alternative investors. They shared industry insights, which provided attendees with a great return on investment.

Wealth managers of the future

There’s a famous saying in the finance industry: “Invest in yourself; you can afford it.” That was O’Connor’s key message. O’Connor has spent her entire career at Morgan Stanley and exudes passion for wealth management. She took the audience on a journey into the future, providing a glimpse of what tomorrow’s wealth managers should be prepared for.

According to O’Connor, the role of a financial advisor has evolved over the past four decades. In the 1980s, advisors were essentially stock brokers, offering their clients solely stocks and bonds. Over the years, advisors evolved and were able to demonstrate value by focusing more on portfolio construction. They became investment managers who included some asset allocation strategies for their clients. “More recently, the range of products has expanded beyond investments to include lending, cash management, and insurance, along with services like trust and estate and philanthropy,” she said. “As such, many advisors became what we call wealth managers.”

In the future, O’Connor sees that it will be important for advisors to evolve into “family wealth managers.” She said advisors will still aim to deliver investment excellence, but that alone won’t define their value to clients. “Clients want to know they’ll be able to achieve their life goals. They want to be able to provide for their families, have sufficient income for retirement, leave a legacy, and pursue philanthropic goals,” she said. “Today, advisors are positioned to deliver so much more, and we see the most successful advisors taking a goals-based approach. It includes performance measured against client financial and life goals—not just a benchmark.”

Investment issues

Besides a significant role change, financial advisors will also have to get beyond the passive versus active debate. There’s really no such thing as passive investment because an investor must actively decide to “invest passively,” noted Wiseman. When we construct an investment portfolio—for our own RRSP or a large pension plan—it’s not about constructing either a passive or an active portfolio but using all the available investment strategies to achieve the desired investment goals, he said. These strategies range from index market cap-based strategies, smart beta and factor-based strategies, systematic or quantitative strategies, traditional fundamental strategies, high-conviction strategies, and alternatives, including unlisted (non-public) investment vehicles.

The investments philosophy of the Canada Pension Plan Investment Board (CPPIB) can be used to illustrate this argument about the false dichotomy of active versus passive investment. Two years ago, the CPPIB, one of the most active investors in this country, had 48 percent of its assets in alternative assets, primarily unlisted (non-public) investment vehicles. However, at the same time, it also had 30 percent in index-based investments. It’s not about active versus passive but the achievement of desired outcomes using all available strategies. The assets in the index enabled the CPPIB to dynamically rebalance the risks in the portfolio. Assets in unlisted (non-public) investment vehicles could not have done that.

Wiseman also pointed out that the investment world is changing drastically. Wealth concentration has moved from the West to the East. Defined benefit plans are becoming rare, and investing is no longer about reading analyst reports but about delivering products, solutions, and data. An investor can’t add value by reading annual reports, quarterly reports, or research reports; these reports have all been incorporated into the prices by the time they become available. Investors must change the way they invest; it’s not optional.

Adapting to change

Both O’Connor and Wiseman noted that the world of investment has been changing and will continue to change rapidly. These changes will affect the roles of the players in the investment world as well as the methodologies they use to manage investments. As investment managers, adapting to these changes is not optional. Adapting is essential if we want to continue surviving in this field.