The role of the chief operating officer has evolved in the financial services sector, where tighter regulatory oversight and pressure on earnings and profitability has prompted many industry players to modify their business models, Chris John of Broadridge told Family Wealth Report.

The role of the chief operating officer has evolved in the financial services sector, where tighter regulatory oversight and pressure on earnings and profitability has prompted many industry players to modify their business models, Chris John of Broadridge told Family Wealth Report.

Broadridge, a global provider of investor communications and technology solutions for banks, mutual funds and corporate issuers, teamed up with The Economist Intelligence Unit for a recent study of 414 executives engaged in securities-related businesses.

Among the key findings was that business leaders – for the first time in the modern financial services era – are keen that the COO plays a lead role in driving business model change.

“In today's connected, global business environment, COOs have greater visibility on regulation, changes in market structure and shifting client needs,” the report, entitled Operations Power Performance: Managing Risk and Delivering Value, said.

While the study was focused on executives in the financial services sector at large, John said many, if not all, of the issues raised resonate with those facing the wealth management industry.

He said the pressures on the COO role are much heavier than ten or 15 years ago, and that there are a number of factors behind this shift. One simply relates to heightened regulatory oversight industry-wide, while there is also mounting pressure on earnings and profitability, prompting many firms to re-think their business models and how they can cut costs without that having a detrimental effect on performance and efficiency.

“When firms are under tighter scrutiny, there is a tendency to empower those executives who can come up with new ideas,” John, president of revenue and expense management, said.

In terms of business model restructuring, and what shape this may take, John noted how a firm may have multiple data centers globally carrying out the same function.

“We're seeing that move towards more of a consolidated model... whereby in some cases firms may choose to outsource if they don't have the expertise in-house,” he said. “Business margins are also getting squeezed, and this is one way to consolidate costs and build consistency.”

He added that a lot of this is driven by large volumes of data and the need to set up processes using technology to create a more efficient workflow and audit control. Ensuring the way assets are managed and associated costs are well-defined and transparent is increasingly critical for the end-user (and also a big focus among regulators).

“From a standpoint of regulatory oversight, there is a need to focus on the end-client,” John said. “Regulators want to make sure clients are being reasonably and fairly taken care of. Anything that has an impact on the end-client is going to be an area of focus for transparency and scrutiny among regulators.”

This sharpened focus on the “investor first” mentality also reflects increased awareness on data security and access, which are highly talked about topics in the industry today.

“In their efforts to adapt to globalization and technological advances, executives say they are highly focused on improving the overall investor experience, which had previously suffered from lack of security and excessive rigidity,” the report said.

Overarching themes

According to the report, over two-thirds of respondents cited new regulation and governance requirements (35 per cent) or changes in market and industry structure (32 per cent) as the main forces driving business transformation – ahead of globalization (17 per cent) and technology (13 per cent).

Meanwhile, it was found that expanding into new markets is the overarching business orientation for many firms, but that more intense regulation and changes in market/industry structure are the biggest challenges they face in doing so.

Overall, risk management was cited as the top strategy for overcoming various global hurdles, followed by investment in product differentiation and innovation and modernizing technology infrastructure. Specifically, building automated processes that integrate risk management, audit trails and compliance processes emerged as the most effective strategy for adapting to more stringent regulatory and governance requirements.

Other operational activities mentioned as having a moderate or high potential to drive business value included (in ascending order): compliance, front-office, client onboarding, regulatory reporting, data management, order management and execution, clearance and settlement, and accounting and reconciliation.

Referring back to the point about the role of the COO, the report said that human collaboration across the organization – as well as building systems that integrate functions – is recognized as critical for operational leaders to boost overall performance, taking into account all the above-mentioned issues.

“In addressing the challenge of more intense regulatory and governance requirements, for example, 40 per cent of all executives point to collaborating with other executives in the development of an integrated risk profile of the organization as the most effective approach,” the report said.