The landscape of the financial services industry is changing at a rapid pace. Banks and wealth management firms now must cater for a new generation of customers, with different needs and expectations, while managing massively increasing compliance demands and striving for efficiency gains. As a result, the sector is under great pressure, with profit margins now 9% lower and cost to income 6% higher than in 2007.
Changing client expectations
Financial services clients today are increasingly using online technology and social media as part of their everyday lives. This change in behaviour is greatly in?uencing the expectations they have for their banks and wealth management firms.
A trusting relationship which offers traditional services is imperative, but clients also now want a much richer engagement and continuous experience across a variety of channels so they have the information they need to make decisions at a time and place that is convenient for them.
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Understanding and meeting client expectations of service is fundamental to success, but achieving this in today’s environment requires a fine balance to maintain profitability when traditional revenue streams are under pressure. Yet, the need for investment in client-focused technologies is underlined by recent statistics that show 65% of high net worth individuals are ready to leave their wealth management firm due to a lack of integrated channel experience.
Technology has the ability to support financial managers in understanding their clients better, so they can market products and services more e?ectively, and ensure investments are suitable for each client and segment.
Today’s wealth management and banking solutions also help address the need to reduce the cost base and deliver products at a price that is both competitive and profitable, along with managing risks, minimising the increasing threat of cyber-crime and improving operational efficiency.
Improving operational efficiency
Improving technology without first addressing shortcomings in the operating model will only deliver some of the potential benefits available. Therefore it is essential banks and wealth managers review their operating models alongside the technology strategy as part of their overall business re-design.
The operational back-office of a financial organisation is increasingly becoming a commoditised process, which, at the moment, does not enhance the client engagement model. The advantages of modern outsourcing models allow firms to focus on what they do best; supporting the client relationship and delivering exceptional services. Such models potentially reduce the cost of operations by up to 30%.
An experienced outsourcing partner can achieve this by delivering greater cost efficiency, higher service quality and risk mitigation. Managed as a service, it can reduce the overall cost of technology while keeping up to date with major shifts in markets, new products and regulatory changes.
As in any outsourcing initiative, some wrestle with the idea of relinquishing control of a crucial part of their operations to an outside provider. However, an increasing number of financial institutions are now seeing the real advantages of adopting an outsourced model and accepting that they should focus on parts of the service model visible to the client and delivering the overall experience.
It is no surprise that 'Challenger' banks and new start-up online investment managers entering the UK market are adopting this model to focus on the client experience and to come to market more quickly, with the same capabilities as their larger competitors.
Having a blank sheet of paper, they can design operating models and adapt the structure to new post Retail Distribution Review (RDR) revenue realities without the burden of using their capital to create infrastructure.
This infrastructure needs to address the broad set of business processes from client digital applications to operational delivery in a way that is seamlessly integrated and powered by a consistent platform, while meeting the growing demands from regulation.
The globalisation of compliance
Since 2010 the cost of legal, compliance and risk management has risen by 32%. It has therefore become imperative for financial organisations to review the efficiency of how they handle regulatory compliance and one of the key ways this can be achieved is through the use of technology.
At no time in recent history has regulatory change driven the financial services industry to the extent that it does today. Capital adequacy rules, such as Basel III, have radically altered the way banks operate, the profitability of different business streams and capital requirements of banks as a whole. Impending changes in key accounting standards will require significant system and reporting changes.
The last recession also resulted in an increasing number of new regulations that financial institutions are only now fully implementing and feeling the impact of the subsequent cost and operating practices. Many of the tougher rules will come into force over the next few years and there is little prospect of things easing after that.
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Managing the coming changes will be a significant challenge for any finance manager and in many cases, upgrading to a more streamlined technology platform or outsourcing entirely will be considerably cheaper and less risky than trying to enhance outdated legacy systems.
The need for change
The momentum of change that the financial services industry is going through will only intensify throughout the course of 2015. As technologies evolve, so too will client demands and service expectations, with regulatory and financial pressures continuing to build amidst all this.
It has become business critical that banks and wealth managers become masters of such changes – and technology is the key to achieving this. Stepping back and reviewing current systems will enable an assessment to be made on whether they can support client expectations, compliance and efficiency as the industry moves on. Ultimately it is the forward thinking organisations that will benefit most from the challenges that lie ahead.