Changing financial landscape

The global financial services industry is likely to be confronted by significant new regulation as one of the consequences of the sub-prime meltdown and the resultant market volatility, according to leading global investment consulting house Watson Wyatt.

The company today released new research outlining the investment landscape that is being forged as a result of sub-prime and foreshadowed “a future phase of significant regulation which will impact the financial industry on a scale similar to the Sarbanes-Oxley effect on US corporations”.

According to the Watson Wyatt research, institutional funds are likely to evolve into a different food chain in which expense on various activities adds up to a better value proposition than exists today, and there is likely to be an emergence of new investment content offering higher efficiency and a focus on alpha and beta as separable items.

However, the company also argues that there will be what it describes as a “continuing crisis contagion” in which dysfunction in the credit area and excess competition, complexity and compensation continue to hamper the industry.

Commenting on the research, Watson Wyatt Australia head of investment consulting Graeme Miller said “complexity” was the one word that will describe the flavour of the finance industry over the next few years.

“[The new investment landscape] will support increasingly sophisticated investment products and solutions, but will also weigh down decision-taking,” he said. “In particular, funds will have to face three big problems — an increasingly crisis-prone financial system, high investment costs and too much short-termism.”