The author of this article – the second in a series – argues that even in difficult circumstances, financial services organisations should not have to make a binary choice between investing in service excellence or managing costs.

The following article, one of a series, comes from Panos Archondakis, global head, Banking and Wealth Management, EPAM Systems. The editors at this news service are pleased to share these views and invite replies. To reply to this article and enter the debate, email tom.burroughes@wealthbriefing.com

In a previous article, we examined technology implications driving the widespread shift towards digital experiences in wealth management and beyond. We explained that wealth managers need to keep up with the experiences that digital challengers provide while continuing to innovate in the products and services they offer. And, given that this is a battle for survival, wealth managers need to evolve their platforms rapidly to enable this transformation, because those who fail to keep up will, at best, be marginalised and, at worst, cease to exist.

Challenging market landscape 
As we enter the new year, macroeconomic and geo-political shocks continue to exert extreme pressure on businesses in general, and financial services organisations in particular, to implement unavoidable cost control measures. Inflation and interest rates haven't been this high for many years, economic growth is sclerotic with a high risk of recession in Europe and North America, and companies are laying off thousands of employees.

As a result, we are seeing banks across Europe and North America focus intensely on headcount reduction and cost control. Stock markets are down over the last year, crypto markets have collapsed, and growth prospects in the near term are looking bleak. 

However, there are signs that the downward trends in all these indicators may have peaked, and by the end of 2023, markets and the global economy may be moving towards an upward trajectory. This means that while the cost pressure and market impact on wealth managers are severe, financial services decision-makers need to look to the future and position the business well to take advantage of growth opportunities when they return.

Cutting costs and improving performance
Even in these difficult circumstances, financial services organisations should not have to make a binary choice between investing in service excellence or managing costs. In many cases, the same measures required to control spending can also be used to improve not only services but also the technology landscape and flexibility for future enhancements and growth. Some of these measures include the following: 

•    Digital transformation and enablement of services can be oriented towards automation and self-service. If done intelligently, this type of change can provide enhanced experiences and journeys for customers while enabling a reduction in service costs, operations and customer service centres.

•    Cloud migration and technology simplification: Whether an in-depth overhaul of the entire technology landscape or focused attention on particular functional areas, modernisation of applications, removal of duplication and migration to cloud services can significantly reduce the cost of technology operations, while also providing flexibility and capability to enable the digital service models necessary for future growth. 

•    RegTech and “Compliance by Design”: It’s a truism that the financial regulatory landscape is continually evolving. However, industry regulatory compliance does not have to be a massively expensive and last-minute scramble to meet deadlines, with poorly understood changes to brittle, legacy systems supported by manual processes and armies of temporary staff. Innovation in regtech, and well-managed change principles to enforce “compliance by design,” can all help financial services organisations save time and cost on compliance.

While there are opportunities to drive efficiency and generate top-line business value, the fact that many banks and financial institutions are simultaneously reducing headcount carries an inherent risk. This means that the skilled personnel needed to implement such strategic transformational initiatives may not be readily available, just when they are most needed. 

Banks and financial institutions will therefore need to balance the urge to rely on full-time employees to drive strategic change with the flexibility offered by working with specialist external consultants. Leveraging partners with the right financial expertise can help wealth managers efficiently implement the desired change while moving fixed costs to operational costs.

Looking ahead
With the enormous pressure on wealth managers to improve margins and reduce costs, the first half of 2023 will understandably prioritise allocating time and resources to ensure that these initiatives are successfully carried out. 

While this restructuring exercise might be inevitable to ensure business viability, wealth managers should adopt a holistic view in identifying measures that can provide short-term cost savings as well as long-term business value. When implementing cost reduction in conjunction with modernisation and simplification initiatives, wealth managers should aim to achieve savings while equally positioning the business to take advantage of the opportunity when the economy starts recovering.

As financial decision-makers weigh up their options for the next six to 12 months, they should consider the possibility of partnering with specialist industry vendors for strategic planning and advisory services to make up for any deficiencies in internal resources resulting from cost-cutting measures. 

Partnering with vendors who have the right experience and skill sets can bring in a host of competitive advantages. These include exposure to broad industry experience, access to new ways of solving problems and shortening time to market for new products, helping decision-makers create new areas to expand into and positioning the business for the future.