24 April 2019

Under pressure: A bohemian rhapsody in the financial industry

By Stig Olsen

I watched the award-winning movie “Bohemian Rhapsody” the other day. I must admit that I had forgotten how many hits Queen actually produced. How they dared to be different and take bold moves. How a simple but genius song like “We will Rock You” found its way to sport events all around the world, and how they commanded the entire Wembley Stadium at Live Aid. Brilliant! One of the songs in the movie, “Under Pressure”, even translates to the financial industry today. The pressure on revenue, the pressure on digital solutions, and the pressure on margins. In “Under Pressure” Freddie Mercury sings “Turned away from it all like a blind man”. I’m thinking, you definitely don’t want to be remembered for the one who took that approach.

The question is what to do with decreasing revenue. The answer? Technology. Pressure on revenue is the subject of several white papers recently. We see robo-advice emerging as a complete self-service offering, where you as a retail client can get a discretionary managed global portfolio with regular rebalancing, at a significantly lower cost. Currently, many retail clients own mutual funds with fees that are quite high compared to the new offerings out there. Fees are going down, however, and when you have to charge less, you need more AUM in order to keep your current revenue stream. Meaning, your team will need to manage more clients and assets than they do today. You need to be better than competition. You need to be in position to leverage new opportunities that arise in the market, and fast. And how can you do all this? By having the right technology, and knowing how to use it. The right technology is about tomorrow’s opportunities, not only yesterday’s challenges.

I recently wrote a blog post about the digital race. What is clear is that you need to meet your clients and prospects where they are in order to do business with them. People are online, all the time, and often expect the same from you. But you can’t jump on every trend just to seem current, that’s too expensive. Investing in the right technology solutions, related to your overall business strategy, is key in order to survive in the long run.

Pressure on margins is not all due to pressure on your revenue stream, but also a direct result of the increased cost of being in business. Ever-changing and tighter regulations drive costs. The fact that you need to manage more clients with the same number of people, drives the need for scalability. There is no silver bullet on how to address this, as it is a bit different from business to business. But there is one common factor that cuts across any business, and that is scale. Technology scales better than people, which is a good pointer in what direction you should look when pressure on margins is threatening your business. Make sure to have the best available technology for your type of business that lets you scale. That way you can grow while controlling your costs, and manage your revenue stream in a way that has positive impact on your margin.

The fact is, in an industry under pressure, you need to invest more time and money into your technology stack. If you do, you are likely to take business from your competitors. If you don’t, you will lose business to them, and I will probably write about you in a future blog post, inspired by another Queen song: “Another one bites the dust”.

 

Stig Olsen is Senior Director of Relationship Management at SS&C Advent, overseeing client relationships in EMEA & APAC.  Connect with Stig on LinkedIn as he continues to share his perspectives on the investment management industry.