The storm sweeping across financial services

From

Peter Dawson

Uncertainty stokes the flames of fear and that is particularly evident across the financial services sector with daily news of new Coronavirus infections recorded in Australia and other parts of the world. Closing businesses, restricting travel, being told to stay home and perceived mixed messaging has heightened anxiety amongst employees and their families. Talk of shutting-down the Australian economy and what that will mean has left many people thinking that their secure jobs are no longer secure and that they too may soon be lining up at Centrelink offices.

What happens next will depend on how long it is going to take to flatten the infection curve. If it is within a relatively short period there is a strong possibility that the Australian economy will start to recover soon after, however if the infection rate doesn’t decline or isn’t at least halted and the stimulus packages introduced by the government aren’t effective then there is a significant increase in the possibility the economy will slide into depression. So what does this all mean for our industry?

Wealth Management

Wealth Management businesses that have established client bases look to be on relatively firm ground. Financial planning principals have reported that while clients are concerned by recent events, there is only a relatively small minority that have altered their investment strategies. Most of those that have altered their asset allocation have reduced their expose to equities but not liquidated their positions and there are those who are keen to dollar cost further investment in the coming months.

These principals are confident that their clients will ride out the storm and they plan ride it out with them. At this stage they are not looking at reducing employee headcount and if they have to look at cost reductions in coming months will look at other areas before they consider redundancies.

Those practices that have been established in more recent times and rely on continued business growth will find the coming months difficult with some seeking to shed support staff and others looking to merge their client bases with other firms as a survival strategy.

The work undertaken by leading wealth management consulting firms has been beneficial to ensuring the welfare of many financial planning businesses. The inclusion of risk management strategies into business planning processes have been designed to prepare principals for disruption to their businesses. While few would have planned for the scale of this event, financial planning principals that have engaged these consultants have policies and systems in place that will help them keep their firms on a steady footing.

Institutional wealth management businesses have gone through significant rationalisation of the advice arms and are now in the process of making sure that their clients are provided advice to meet their needs through this period of upheaval. However, these companies have significant cost bases and cost management will be a focal point in these businesses as they navigate the months ahead.

Investment Management

The global titans of investment management have the ability to ride through the worst of storms without introducing major cost savings. From talking to senior executives of these firms, the consensus view is that while this is a major disruptive event their companies won’t deviate from their business strategies. However, on a day to day basis this doesn’t mean business as usual as most of these executives are working from outside their offices and client interaction is conducted by phone or via a conferencing platform. These executives kept reiterating their concern for their employees and that they are committed to holding their teams in place. Any significant cost reduction initiatives are not planned at least in the short term.

Most small to mid-sized investment firms run lean operations, however the impact of decreasing revenues may seriously impact some of these businesses, particularly those that don’t have institutional backing. There are those that may be forced to close their doors or seek out a new home with larger, more established businesses.

The fear people have of losing their jobs in financial services is not without reason, particularly if the virus continues to spread and the economic impacts reverberate through the employment market. Already there has been a reduction in recruitment activity, shedding of casual employees and contractors but what next?

Worse-case scenario

Wide scale job losses in back and middle office positions and those in client facing roles may face redundancy if they are deemed non-essential employees. Job sharing will become more widespread particularly to fill roles left open by exiting employees. Voluntary redundancies will be offered at first and then if business conditions further deteriorate, companies will introduce compulsory redundancy programs.

Human resources executives, as well as managing redundancy programs, will be expected to take on the recruitment function as the preferred service provider arrangements with recruitment companies are suspended.

Best case scenario

Companies able to adapt to the changing environment and will be able to keep their businesses operations on course, focusing on the needs of their clients and maintaining employee headcount. There are also some positives for small practices, one being that those who have been reticent to use client engagement technology and will now seriously consider embracing it.

When it all comes to an end

Financial services is comprised of a large community of people and in challenging times like this are always willing to give support to each other particularly those who are struggling. Hopefully, we won’t be visiting a worst-case scenario but whatever the challenges we face going forward, there is a recognition that those companies that treat their employees with dignity and compassion will be the employers of choice when this all comes to an end.

By Peter Dawson, Principal

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