What dominant attribute will be needed to succeed in money management in a disrupted world?

What dominant attribute will be needed to succeed in money management in a disrupted world?

Good money managers need a number of attributes: fiduciary responsibility, deep-seated personal ethics, humility in the face of Mr. Market, the ability to communicate what they do to peers and clients, and of course the ability to manage money. My thesis is that in the future,

success will come from personal character and values, much more than technical skills.

Reduced to the essential, all money management is about collecting data, organizing it and processing it, and taking decisions based on the results of that process. That’s as true for a quant manager as it is for an indexer or a deep-value stock picker. It’s the ultimate middle-management job.

There’s much being written about how robotics, big data, and machine learning will be hugely disruptive over the course of our professional lifetimes, and in particular how the impending wave of disruption will, unlike previous technology-driven disruptions, include knowledge workers in the turmoil.

According to a recent McKinsey study, about 60% of occupations have at least 30% of their activities that can be automated. They explicitly include most data processing and collecting activities.

Most of the functions of money management are, given enough data and processing power, already capable of automation.

The rise of complex quant strategies demonstrates that a very small number of overseers can “manage” a broad panoply of underlying investments and trades that are machine-managed (and, as importantly, that increasingly investors trust them to do so). At the other end of the spectrum, a firm like Vanguard delivers cheap beta primarily through a mix of technology and distribution – not much fund management in there. It’s been widely reported that BlackRock’s decision to base more of its strategies on computer models has explicitly cost some money managers their jobs already. Simple asset allocation strategies are already handled by robo-advisors. Already, big data allows much sophisticated shoe-leather research to be automated – go look at what a firm like Kensho can do for you. And big banks like DBS in Asia are now leading the investment in distributed ledger technologies in order to reengineer their internal processes (and… reduce headcount).

What’s left? The ability to communicate? Well, when you read a Bloomberg corporate earnings announcement and commentary today, that’s almost certainly written by a machine. The reporting function of money management has been largely automated for many years. Your client communications will soon be, if they’re not already.

What will really be left is the ability to apply human values to the process; to ensure that the processes are driven for the client’s benefit, that there’s an overlay to prevent the machine running amok (much as there’s an investment committee or risk manager to look over the manager’s shoulder today); and to think in abstruse, different, and original directions – to find the new routes to take the machines. The need for large teams of analysts, and even for many of today’s portfolio managers, will likely shrink rapidly. Like many professions, money management will increasingly be winner takes all – a very small cadre of high priests: culture-bearers, ethics police, and thinkers.

This is also a defensive skill. The Monetary Authority of Singapore recently said in a policy speech that "all financial institutions need their customers to trust them in order to build a sustainable business ... MAS is therefore interested in the culture in financial institutions as it has a dominant influence on the way they conduct their business with customers." The same speech cites the CCP Foundation's findings that over a 5-year period, for 20 major institutions, the cost of poor conduct (mostly in regulatory fines) was US$250bn. That gets stakeholders' attention.

Asset managers, as they increasingly automate more and more sophisticated processes, will be acutely sensitive to the need for good culture as a way to build business and differentiate themselves, and the potential costs of not managing their culture well. They will focus more and more on the personal fiduciary and ethical values of the executives driving their business. The technical skills...well, they'll be run by the robots.

In passing... Asset owners will be slower to adopt machine technology – for now it’ll be more likely to serve them, not replace them. Hence they’ll still look for the human interface for some time to come. So one job function looks safe: professional product specialists and marketers shouldn’t rush for the hills just yet.

Finally, and an obvious comment: programming skills will be core to every profession, fund management being no exception. The ability to understand what the machines are doing, and interface intelligently to tell them what to do next, will, arguably, be the remaining technical competency of the “star fund manager” in the future. Adding your CFA or CAIA to a successful programming resume may be today’s route for your success tomorrow .

But who you are as a person will be the real decider.