5 ways the FS industry can support the recovery

By David McCann on Thursday, 12 November 2020

While it may not feel like it, we are already in some strange recovery from the pandemic. The initial shock of the first wave has abated and despite facing further lockdowns – and let’s not dance around it, an incredibly tough winter ahead – we are in the very early stages of a recovery. That can be said for you and I, as people, but also for brands, not least those in the financial services space.

I’ve spent over 25 years working with a range of companies across the financial services industry from banks and financial advisers to mortgage brokers and sustainable investment boutiques. The scale of change in the last six months is something I’ve not witnessed before. But, what about what comes next? Can the financial services industry help with the recovery?

Yes, I think so. The industry has an opportunity to transform for the better, help people feel safer, stronger, more resilient and ultimately herald in a new era.

There are five key areas that financial services areas need to think about as they address their forward strategy. These are technology, fairness, inclusion, long-term planning and ESG.

The digital transformation has only just begun

Many changes will be enabled by technology and the acceleration of capabilities that lockdown demanded. It’s logical that we are going to continue to embrace an online lifestyle. This will impact where we live and how we socialise, and therefore how we spend, save, invest and borrow.

Likewise, we will expect the financial brands we use to fully embrace a number of developments. From open banking to smart connected devices that harness the power of 5G communications. From the ethical use of our data and AI to develop better risk models for credit and insurance propositions, to affordability calculators for mortgages, that more accurately reflect the changing world of work.

A meaningful fairness

Financial Services undoubtedly has a role to play in helping to broker a new societal culture – one that’s fairer, more open and more collaborative.

This culture will be more active in its support for key workers, whose value to society has been proven throughout the pandemic; and young people, the cohort worst affected by the economic aftershocks of long-term unemployment, depressed wages and rising living costs.

If we apply the ‘fairness filter’ to fees for financial advice or investment management, we might see a shift towards more shared value/shared risk pricing models. While, of course, no adviser wants a client to make a loss, those who can offer to share some of the pain of a market fall with their client might go on to enjoy more loyal and ultimately lucrative relationships.

Providers who make it their mission to help everyone access the UK’s world-class financial system will make our society more inclusive, and therefore fairer, safer and more resilient.

Inclusive innovation

This drive for fairness and a more inclusive financial culture might also act as the impetus for a range of new product propositions, many with a health or community focus, or designed to support key workers.

As part of a broader shift from ‘customers’ to ‘members’ and ‘partners’, we might see forms of community-based insurance, a resurgence of mutual societies, and new propositions in affordable housing, whereby existing homeowners invest in new properties for first-time buyers and key workers.

New vehicles to release that money to help young people become more financially active will be introduced – we’ve already seen the government moot the pension for property idea. But from financial companies this could comprise multi-generational financial products, such as an integration of equity release and first-time buyer mortgage propositions, or early access to pension pots to fund the deposit on a child or grandchild’s first home.

No time for short-term thinking

It will likely take several years to return to pre-pandemic levels of confidence. We might also see a shift away from short-term thinking and towards long-term planning. Enlightened businesses, including Unilever and Nestlé, have been arguing for some years that sustainable development and the demand for immediate profits are incompatible.

There is a new generation of capital investors making a compelling case for decoupling market and regulatory cycles from political ones. They are the ones investing in property and infrastructure for the next generation. Expect to see a move towards the fairer stakeholder capitalism, outlined in the 2020 Davos Manifesto, gain traction as the new dominant model in 2021.

ESG: from ethics to impact

The thing that connects the themes of technology, community, fairness and long-term thinking together, is a shift in the focus of ESG investing away from ethics and towards impact. The concept of ‘doing the right thing’ in ethical investment will become more about helping to build a better world in a practical, rather than a moral sense.

There is an opportunity for ESG to pioneer a new generation of innovation and help solve some of the world’s most pressing problems, from climate change and water shortages to micro-finance.

If we can get all of this right the Financial Services industry has the opportunity to be part of the recovery from the pandemic, helping to build a society that is more socially cohesive and collectively resilient.

An editorial piece written for Finance Digest.

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