Investments and Wealth Management Industry Analysis and Positioning Statement

INDUSTRY ANALYSIS AND POSITIONING STATEMENT

Industry Analysis and Positioning Statement: Investments and Wealth Management

Part 1: Industry Analysis

From the onset, it would be prudent to note that in conducting industry analysis, I will essentially be concerning myself with the political, economic, socio-cultural, technological, and legal environments – and how these impact the investment and wealth management industry.

Economy: To begin with, it is important to note that most economies from across the world have taken a beating from the COVID-19 pandemic. While it is still too early to tell what impact the pandemic will have on the economic front in the long-term, there is a high likelihood that we could be headed for a major downturn in economic activity. Most people have lost jobs since February – with Ettlinger and Hensley (2020) pointing out that “state and local governments combined have lost 1.3 million jobs since February.” In such a scenario, it is likely that people will have less disposable income – effectively meaning they will invest less and that businesses (some of them listed in the various stock exchanges) will have decreased profitability. It is unlikely that the investment and wealth management industry will emerge unscathed. As Whyte (2020) points out, industry assets have fallen “to $102.7 trillion from $104.4 trillion in 2019 — ending more than a decade of growth for money managers.”

Political/Legal Environment: The investment and wealth management industry happens to be one of the most heavily regulated industries in not only the U.S., but also across the world. This is more so the case given the need to secure investor interests following what has been witnessed in the past in as far as fraud is concerned. According to Deloitte (2020), most of the laws and regulations introduced on this front in recent times have largely been aimed at protecting both consumers and the markets. In as far as markets are concerned, “regulators, both domestic and foreign, are focused on data privacy protections to mitigate the risks that result from improper collection, handling, storage, and use of data” owing to increased utilization of advanced technology (Deloitte, 2020). As a consequence, those in this space are likely to operate in a more restricted environment.

It is also important to note that the immediate future looks uncertain given that we are in the midst of a political transition. It is not yet clear how things will pan out on this front given that at the time of penning this text, it was still unclear how the transition would unfold given the incumbent President’s refusal to concede defeat. The prevailing political standoff could be detrimental to the financial markets in both the short-run and in the long-term.

Technology: If there is one particular industry that has been impacted by technology, it has got to be the investment and wealth management industry. This is more so the case when it comes to trading algorithms (Epstein, 2013). For instance, in hedge fund management, there appears to a race of sorts in as far as algorithmic trading is concerned. This is essentially the utilization of sophisticated computer programs and functions to execute trading orders. Companies seek to benefit from the sheer frequency and speed of the said computers in placing trades – which would largely be impossible for a human trader to replicate. As a consequence, the demand for human traders is likely to decrease. Thanks to technology, there are also wealth management apps that largely mimic the functions of portfolio managers. Examples on this front are inclusive of ARQ, Personal Capital, and Weathsimple. This will likely decrease the need for professionals in this realm even further.

General Competitive State: The investment and wealth management industry happens to be one of the most competitive industries. Only those companies that are able to post consistently high returns survive in the long-term. In the said industry, companies largely distinguish themselves from each other via the approach to investment adopted. The main distinction in this case is long-term vs. short-term investment entities. In the long-term category we have the likes of Berkshire Hathaway which is run by the legendry investor Warren Buffett who serves as chairman, and Charlie Munger who serves as vice-chairman. In the short-term category which is mostly dominated by hedge-funds, we have Renaissance Technologies which is run by Jim Simons.

Society: The investment and wealth management industry largely attracts two kinds of customers – i.e. retail investors and institutional investors (Epstein, 2013). While institutional investors are those firms and individuals who invest large sums of money and move large volumes of securities, retail investors are inclusive of persons who buy securities (or make trades in the forex and commodities markets) in smaller quantities. Thus, the key distinction on this front happens to be the amount of capital deployed and the level of sophistication that either entity brings to the market. With uncertainty in the markets, as is the case at present (and perhaps going forward) as a consequence of the happenings in the political and economic realms, institutional investors are likely to be cautious and take a back seat. Retail investors are also likely to have little to deploy in the markets or put under management.

Summary Table

Elements

Economy

Political/Legal Environment

Technology

Competition

Society

Trends

-COVID-19 depressing the economy

-Laws to protect consumers and insulate markets

-Political uncertainty following elections

-Algorithmic trading

-Portfolio and wealth management apps

-Long-term investment

-Short-term investment

-Institutional investors

-Retail investors

Part 2: Positioning

Skills, Experience, and Knowledge: In essence, success in the investment and wealth management industry calls for a unique blend of certain personal characteristics (disposition) and professional competencies. While the former is largely inborn (or developed over time), the latter can only be acquired in an educational setting. On the professional front, my undergraduate specialization will come in handy in this field. This is more so the case given that it has equipped me with the prerequisite knowhow of the workings of the financial markets. However, I intend to further align myself with the needs of the industry by enrolling for (and pursuing) the Chartered Financial Analyst (CFA) course.

On the other hand, when it comes to personal characteristics, I happen to be rather patient, disciplined and rational in my approach to things. I am also an excellent communicator. These are skills that would come in handy in the field of investments management.

Points of Differentiation (POD): I believe that what makes me distinct, in comparison to my peers vying for a career in this particular industry, is my disposition and personality. It would be prudent to note that in being an excellent communicator, I would be able to engage potential clients easily so as to win them over. I would also be able to make presentations to existing clients in a manner that is engaging so as to connect more with them.

I also happen to be rather patient and disciplined. As it has been pointed out elsewhere in this text, this is quite a competitive industry and only those firms that are able to rake in superior returns are likely to survive in the long-term (i.e. by attracting additional clients and keeping existing ones). This would call for one to have unique capabilities, apart from what has been gathered in the classroom. Warren Buffett has been quoted in the past saying: “successful investing takes time, discipline and patience… no matter how great the talent or effort, some things just take time: you can’t produce a baby in one month by getting nine women pregnant” (Connors, 2009). Thus, I remain reasonably certain that the qualities mentioned would give me an edge over my peers.