Increasing demands from both regulators and clients will top the list of business concerns among U.S. investment management firms over the coming year, according to new research from TowerGroup.

“The industry is in just the preliminary phases of what will likely become a sustained period of regulatory scrutiny,” said Tim Lind, senior analyst in the Investment management practice at TowerGroup and co-author of the research, in a news release. “Even despite inquiries into market timing, application of mutual fund breakpoints and allegations of late trading, the prevailing wisdom on regulatory initiatives had said, ‘This too shall pass.’ Today, prevailing wisdom now holds, ‘Regulatory scrutiny is here to stay.'”

Lind added that if it’s not the regulators breathing down the neck of asset mangers, it will be their clients. “The demands for transparency and the fear of risk to their reputations will drive the IT spending habits of buy-side firms for many years to come,” he said.

The firm says that in 2002-2003, the top two business drivers for investment management firms were cost containment and tactical spending. TowerGroup now finds that regulatory scrutiny and a renewed focus on the client now take top billing, which will help contribute to an annual growth in IT spending of 7% within the asset management segment from 2004-2008.

Data management is the number one technology implication for the buy side. “In late 2002-2003, centralizing the administration of data management was a tactical approach to reducing costs in the middle office. In 2004-2005, the industry is recognizing that effective data management is required to provide more effective performance analytics, client reporting, risk analysis and portfolio decisions,” it says.