Overview of The Current Financial Marketplace

Navigating the current financial marketplace is essential for financial advisors aiming to provide informed and strategic guidance to their clients. Today’s financial landscape is shaped by a dynamic interplay of economic indicators, regulatory changes, technological advancements, and evolving consumer expectations. Understanding these factors enables advisors to anticipate market trends, mitigate risks, and capitalize on opportunities. This overview will explore key elements influencing the financial marketplace, offering insights that can help advisors stay ahead of the curve and deliver optimal advice and solutions to their clients.

Personal Finance

Why is personal finance management (PFM) important? Personal finance is an individual’s budgeting, saving, and spending of monetary resources, like income, over time–while taking into consideration various monthly payments or future life events. It sets consumers up for all stages and major events in life, from buying their first car to retirement planning.

When choosing a bank or other financial institution, consumers typically look for businesses that offer personal finance services, such as financial advisors. As money management activities increasingly migrate online, consumers are looking to banks that allow them to manage personal accounts remotely and take control of their own financial health via online platforms and mobile apps. 

Consumer Finance

From investing in real estate to paying for college, consumer finance helps people afford products and services by paying in installments over a fixed period of time. The consumer financial services market is made up of key players including credit card services, mortgage lenders, and personal and student loan services.

Corporate Finance

Corporate financing is an all-encompassing term to describe the financial activities of a business, such as sources of funding, capital structure, actions to increase the company value, and tools to allocate resources. 

Jobs in the corporate finance sector include accountants, analysts, treasurers, and investor relation experts that all work to maximize the value of a company. 

• Private equity: This is the value of company shares not publicly listed. High-net-worth investors buy shares of private companies or established mature companies that are failing. They are essentially in complete control of the companies they invest in. 
• Venture capital: Venture capital (VC) is financing provided to startups that firms believe are poised for long-term growth. Due to the risk associated with investing in young businesses, venture capitalists typically invest in less than 50% of the equity of the companies.
• Angel investors: These are independently wealthy individuals looking for small businesses and startups to invest in. Angel investors are essentially purchasing a portion of the company, which forces founders to relinquish some control.

Financial Services Industry Regulations

As you know, the financial services industry operates within a complex regulatory framework designed to protect investors, ensure market integrity, and promote transparency. Financial advisors must stay abreast of these regulations to remain compliant and provide the best advice to their clients. Here’s an overview of key regulatory areas and recent developments that financial advisors should be aware of:

1. The Securities and Exchange Commission (SEC) Regulations

• Regulation Best Interest (Reg BI): Effective since June 2020, Reg BI requires broker-dealers to act in the best interest of their retail customers when recommending securities transactions or investment strategies. Advisors must disclose conflicts of interest and ensure that recommendations align with clients’ financial needs and objectives.
• Form CRS: Advisors must provide clients with a Client Relationship Summary (Form CRS) that outlines the nature of their relationship, fees, conflicts of interest, and disciplinary history. This helps clients make informed decisions about working with an advisor.

2. The Department of Labor (DOL) Fiduciary Rule

• Fiduciary Responsibility: Although parts of the original DOL Fiduciary Rule were vacated in 2018, the DOL continues to emphasize fiduciary responsibility for retirement account advisors. Advisors must act in the best interests of their clients, ensuring that advice on retirement accounts is prudent and loyal to the client’s needs.
• Prohibited Transaction Exemption 2020-02 (PTE 2020-02): Allows financial institutions and investment professionals to receive compensation for certain types of investment advice, provided they adhere to strict guidelines to mitigate conflicts of interest.

3. Financial Industry Regulatory Authority (FINRA)

• Suitability Rule (FINRA Rule 2111): Advisors must have a reasonable basis to believe that a recommended transaction or investment strategy is suitable for the client based on their financial status, tax status, investment objectives, and other relevant factors.
• Know Your Customer (KYC) Rule (FINRA Rule 2090): Requires advisors to use reasonable diligence to know and retain essential facts about each customer to effectively service the account and make suitable recommendations.

4. Anti-Money Laundering (AML) Regulations

• Bank Secrecy Act (BSA) and USA PATRIOT Act: Financial advisors must implement AML programs to detect and report suspicious activities, including conducting customer due diligence (CDD) and maintaining records of transactions. Compliance with these regulations helps prevent financial crimes and protect the integrity of the financial system.

5. Data Protection and Privacy Regulations

• Gramm-Leach-Bliley Act (GLBA): Requires financial advisors to explain their information-sharing practices to clients and safeguard sensitive data. Advisors must implement measures to protect clients’ non-public personal information.
• General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA): Although primarily impacting clients in the European Union and California, these regulations set standards for data privacy that can affect advisors with clients in these regions. Advisors must ensure proper handling, storage, and protection of personal data.

6. State Regulations

• State Securities Regulators: Advisors must comply with state-level regulations, which may vary but generally require registration, adherence to fiduciary standards, and continuing education. State regulations can also include specific disclosure requirements and examination by state securities regulators.

7. Ethical Standards and Continuing Education

• Certified Financial Planner (CFP) Board Standards: Advisors holding the CFP designation must adhere to the CFP Board’s Code of Ethics and Standards of Conduct, which emphasize fiduciary duty, integrity, and competence.
• Continuing Education Requirements: Many regulatory bodies and professional organizations require advisors to complete continuing education to stay updated on regulatory changes and industry best practices.

Financial Services Industry Trends & Statistics

From personal finance to commercial banks, digital advancement and increased financial technology is rapidly transforming the financial sector. And two trends in particular that are driving this digital evolution are: tapping into a huge gig worker opportunity and the growing influence of big tech companies.

Gig Economy Workers

According to Insider Intelligence, gig workers have been massively underserved by financial services because they represent a high-risk demographic. 

But thanks to technological advancement in the financial sector, institutions can conduct more thorough risk assessments, which could make serving gig workers worthwhile. Half of the US population is expected to do gig work by 2028, and financial institutions that cater to this demographic could capture a major monetization opportunity.

Digital gig work generated $204 billion in customer volume in 2018 and is expected to grow to $455 billion by 2023, according to a recent Mastercard study.

Big Tech Companies

Big tech companies, like Apple and Amazon, could grab up to 40% of the $1.35 trillion in US financial services revenue from incumbent banks, according to an Insider Intelligence report.

Apple’s launch of the Apple Card could open doors to additional financial tools such as debit cards or PFM applications. And Amazon could bring Amazon Pay in-store–which could attract merchants by saving them interchange costs, cutting into a $90 billion annual source of revenue for issuers and networks. 

And with 54% of respondents to a Bain study indicating that they trust at least one tech company more than their own bank, consumer trust is making big tech players a huge threat in the finance industry.