Like a virus, the financial services industry is continuously evolving, and it took the natural evolution of the coronavirus genome to spark global attention.
For viruses and financial services firms, the survivability through this natural selection process is what shapes the global economy and society.
The evolution of coronaviruses to its current form COVID-19 continues to be a tragedy for millions of people around the world. In fact, coronaviruses have been around for a long time – possibly even centuries. Some of the older strains include alpha coronaviruses, beta coronaviruses, and more recently, strains over the past ten years have included SARS coronavirus, and MERS coronavirus. They have mutated to crossover from animal to human infections at a rate that has alarmed many scientists.
Contrary to some conspiracy theorists, research has shown that the recent strain COVID-19 was not manufactured in a laboratory for diabolical purposes but instead has evolved naturally to become one of the most infectious and deadly of all modern pathogens. With the rapid globalized spread of this virus, we can define COVID-19 as the current “King of all Human Pathogens”. And all of humanity must now learn to yield to its power and become prudent to adapt our normal ways of living to avoid the further spread and evolution of this deadly disease.
The evolution of finance has also evolved over centuries to appear in its current form. There was once a time when people opened passbook savings accounts at their local savings bank. They would deposit cash at the bank teller window, and the teller would hand-write a ledger entry into the depositors’ savings passbook. When you saved enough, maybe the cashier would direct you to purchase a CD or even a mutual fund. Fast forward to today where investors open investment accounts via their mobile device, transfer funds into that account instantaneously, and then purchase 0.25 shares of Google stock.
The evolution of finance and the financial services industry has brought an immediate cause and effect to the financial markets, where the ordinary consumer can actually make real and meaningful investments almost immediately, and the effects of their investment movements as a whole have a direct effect on the global financial markets.
As we consider comparisons of the rapid evolution of viruses and the finance industry, can we also draw conclusions of how one factor impacts the other in the midst of our current pandemic?
Four Factors of How COVID-19 Will Impact the Evolution of Our Financial Industry
Brick and Mortar Businesses Yield to Online Business
As the outbreak continues to spread, numerous sectors in the finance industry are becoming increasingly affected. Vendors are struggling to support a functioning payment system, banks are modifying antiquated policies to allow people access to their assets, and brokerage firms are rushing to assist worried investors in stabilizing their fragile portfolios. Whichever the case may be, teams are rapidly learning just how destabilized the financial system can be when a major event similar to the 2008 market crash occurs.
We’re seeing a shift in consumer behavior for investment management. Traditionally, if a person wanted to invest in assets, they would coordinate with a financial advisor to build a dynamic portfolio that aligned with their long-term goals and needs. With the outbreak of COVID-19, the process of physically meeting with an adviser has seemed to slow as the popularity of robo-advisers appears to attract a wider audience. Since roboadvisers can be remotely accessed from home, the complexity of having to coordinate with a traditional financial adviser is no longer the standard. Aside from having a library of knowledge through the internet, investors can safely manage their portfolios without the risks associated with being exposed to COVID-19.
Due to their simplicity in access, ease of use, online accessibility, and the ability to educate the user, a roboadviser platform alleviates any health concerns that anyone might have. This means that a shift in consumer behavior, for people to favor roboadviser platforms, is most likely. The survival of brick-and-mortar financial advisory firms is teetering between success and failure as customers scale back reliance on traditional advisory, are focusing on basic essentials for their livelihood, and are migrating to digital investment platforms, pushing accelerated challenges onto advisers to fill that gap. Aside from having to strengthen their balance sheet, financial advisers will need to differentiate their business through digital customer service and unique selling propositions – a move that may reinforce customer trust and loyalty.
Harder and Farther: How Operations Teams Manage
As work environments change and new regulations are enforced by local governments, businesses in the finance industry have had their routines greatly impacted. The new “stay-at-home” procedures imposed by cities and states are forcing team members in the operations department to keep the business moving amidst the global virus.
This is a huge undertaking for operations teams, as they are tasked with providing reliable structures for customers through controlling costs and maintaining steady performances – major priorities for financial service institutions facing the fallout from the coronavirus pandemic. The commitments made by these firms provide a facilitated effort despite the circumstances, adapting to the new labor climate and overcoming newfound obstacles.
The costs associated with these new adjustments (such as buying/building new tech, hiring additional expertise, or the price tags linked to reporting and compliance) are challenging many institutions at a time when risk is steadily increasing and balance sheets continue to shrink. However, this cannot be said for everyone, as some businesses are evolving and implementing new strategies to cope with the crisis.
“I think the most important thing during any of these times is you need to have a stable system that won’t go down for your customers,” says Michael Higgins, Velox Clearing CEO.
Productivity Shifts in the Home-based Workplace
Working “remotely” has been an experimental practice for some businesses in the United States. Usually reserved for positions such as contractors or consultants, the “working from home” mindset received a big (and legally mandatory) push from COVID-19. Even before the virus became a reason for people to stay home, increasing numbers of individuals have been saying goodbye to their tedious commute to work by acknowledging the advantages and responsibilities of working from home.
This system of productivity is a different reality for those in the finance industry, coping with the difficulties of working away from the job headquarters and communicating with vendors (or clients) while understanding how to optimize their new office environment.
It’s important to ensure that you are set up to be productive, as this includes having a designated workspace with the right equipment. Thanks to ever-evolving technologies like Skype, Facetime, Slack, Zoom, and cloud computing — not to mention texting and email — it’s no longer necessary to be in an office full-time to be productive. In fact, many kinds of work can be done just as effectively, if not more so, from a home office.
Setting time aside to manage your core responsibilities away from an office desk is also key. Although you must avoid potential disruptions that come with aligning a new work schedule, you must also allow for the social contact and stimulation that ordinarily comes from being in a workplace with others.
“We’ve been busy working hard for our users and doing that with young people via the internet has been a challenge all on its own,” says Kelly Korshak, CTO at iFlip Invest. “Although it’s a different work environment than what I’m naturally used to, it’s a learning curve that I’ve acclimated to very quickly – working efficiently from home while managing my family needs productively.”
For institutional managers and brokerage firms, this new reality has also created a standard process for procedures and work structure. For example, if your position relies on predicting trends in the stock market and managing algorithmic solutions to generate performance, a quantitative trader may offer the perfect opportunity for telecommuting in the finance industry. This process may allow you to work with an extremely flexible schedule as you typically operate within the opening and closing hours of the markets. However, the perks of trading from home does come with a few warning labels, as you’ll need to establish a reliable internet connection to execute trades from your analytical software or have a dedicated back-office team to support your workflows.
Financial Services Firms Need to Reinvent How to Make Money
With investors on the edge due to the coronavirus, investment advisory firms have been hard at work conceptualizing new ways to attract clients, or in some cases keep the existing customers they have.
Gone are the days of charging clients a commission for a trade. The new evolution of finance has shifted strategy to give transactions away for free, but then figure out how to earn revenues in other means such as banking revenues, order routing revenues, or other means.
As revenues for some broker-dealers are falling 28% (from their recent record highs in February), firms are steadily moving to charge clients fees based on assets rather than transactions – a move that is aiming to counterbalance the loss of income as a result of last month’s interest rate changes by the Federal Reserve. Couple that with the ever-growing popularity of roboadvisers, and you start to see a few noticeable patterns that broker-dealers are taking notes on.
Pioneers of the robo-advisory platforms have mentioned that account sign-ups are about 68% higher since the downturn began, with other roboadvisers reporting a first-quarter increase of 25% from a year ago – a signal that March has been its strongest month for account growth. It’s difficult to pinpoint what exactly is responsible for those new sign-up increases since some new accounts could merely be clients switching from other robos. One possibility is that non-investors are spying a trend amid the pandemic selloff and are opening investment accounts for the first time, claiming valuable stock positions that weren’t fathomable when the markets were doing great in February.
The growth of roboadvisors during this crisis presents a unique opportunity for broker-dealers and investment advisers to take advantage of the rising sign-up trends. With new and young investors seeking leadership from a platform that offers resources and investing insight, digital advice applications are projected to successfully cope with the market volatility linked to the recent activity driven by coronavirus fears.
While this global pandemic and economic crisis has impacted every home, our focus as an industry should be to provide a seamless and exceptional customer service
The financial services industry is navigating through uncharted waters, balancing the need to serve the customer while taking measures to protect the health and safety of the public. During times of adversity, working together is what counts, and that statement has never been truer for the financial services industry.