The investment world: After 1% of the millennium

For those in the investment world, the first decade of this millennium has been eventful in the extreme: the IT bubble, rand collapse and recovery, 2003-2008 stock market bull run, commodities boom, property boom, soaring oil prices, FAIS, Bear Stearns and Lehman Brothers, TARP, massive bailouts and stimulus, Greek woes, China becoming the world’s second largest economy…

The list goes on and on, and each of these seismic global events has had a profound influence on the challenges, responsibilities and opportunities facing financial intermediaries in the investment world.

Good old days?

Ten years ago, the world that faced the financial intermediary was one where the old order of the twentieth century was still going strong: the USA was by far the leading economy, Japan was the world’s number two, and wealthy Europe was coming together behind the great hope of the euro. South Africa had high interest rates providing attractive real returns, the rand was perpetually sliding, property was cheap by global standards and stocks had followed the worldwide trend to high valuations in the “new economy.”

So what advice to give clients concerning their investments? In many ways, the world was much simpler then: regulation of financial services was relaxed and investment options were much more limited. Exchange control made offshore investing a very grey area, the stock market had a manageable number of counters to choose from, less than two hundred unit trusts were available (almost all from large institutions like banks or insurance companies), and policies and annuities had not yet completed their fall from grace.

A whole new playing field

Ten years later, and things have changed almost beyond recognition. Gone are the days of the West dominating – things are shifting to the East, with all kinds of consequences for commodity producers and emerging markets like South Africa.

The rich world is desperately trying to fight off a second Great Depression, incurring unheard of debts of trillions of dollars, promising many years of austerity, intermittent growth and possibly high interest rates and inflation to come. Real interest rates are often negative, stocks and property are at risk of capitulating any day, and the world is running out of oil, food and other commodities.

Meanwhile, back at the financial intermediary’s office, he now has to be meticulously FAIS compliant, must prove his competency to regulators, and risks being held accountable should any client advice turn out badly. All of this while navigating a world where relaxed exchange control has opened up numerous offshore options, and unit trust and stock market choices number in the thousands. On top of this, massive Internet dissemination of information, a large increase in the volume of financial media coverage, and a rising culture of entrepreneurship have made clients more informed and demanding than ever.

The new intermediary

In 2010, the financial intermediary can barely “go it alone” anymore: the regulatory stresses leave little time for the essentials of client servicing and expanding the client base, let alone time to analyse and study the investment decisions needed to weather all the potential storms we might soon face!

Intermediaries need to ally themselves with an array of service providers, from fund managers to compliance officers, in order to build a worthwhile practice and deliver to clients. In many ways, the job has changed from travelling salesman to team coordinator, from marketing to management. And with whole new chapters being added to the science of investment everyday, and regulations being developed, the next ten years is sure to bring only one thing: change.