It’s no secret that uncertainty has defined the past two years.
Everything from the solvency of one’s finances to the safety of one’s family to the security of the future has been thrown into question since we first slogged through and are now—hopefully—emerging from the worst of COVID and its far-ranging impact to reclaim some stability.
While there have been oases of steadier ground along the way, the financial world has not escaped the pandemic’s ripple effects either unscathed or unaltered: Perhaps most obviously and visibly was bank branches’ early pivot to in-person services delivered via drive-up windows and the ensuing explosion of online banking. With many still too immunocompromised to venture in-person banking and even more won over by the ease and convenience of managing their money online, both options that started out as work-arounds have, instead, indelibly shaped the industry’s future.
Banks continue to reflect how thoroughly pre-COVID operational models are shifting to meet more modern demands. But, especially for smaller community institutions, it’s difficult to roll out massive overhauls and provide state-of-the-art technology without asking clients to absorb those costs.
“Keeping up is hard because everything is costly,” says Kimberly Cruz, senior vice president/IT and administration officer at Franklin Bank. “We would love to have all of the most current technology—and we do a pretty good job of that—but it’s not cheap, and you don’t want to pass that buck onto the customer, and they don’t want us to do that, either.”
When it comes to the investment side of finance, experts point out that the pandemic did present early market scares and challenges, but circumstances largely normalized within months of COVID’s onset. It wasn’t until early 2022 that the nebulous possibility of a long-term shake-up began to foment.
With Treasury Secretary Janet Yellen conceding in a late-May CNN interview that she “was wrong [in March 2021] about the path that inflation would take”—the White House’s most overt admission yet that it failed to foresee the consequences of “unanticipated and large shocks to the economy that boosted energy and food prices, and supply bottlenecks, that have affected our economy badly”—questions of a recession are nipping at the heels of inflation’s 40-year high, even with President Biden’s promise earlier this month that tackling inflation is his “top domestic priority.”
Michael Busler, professor and associate chair of business studies at Stockton University offers an explanation of how we got here: “From 1981-ish up until last year, the Federal Reserve had, as their primary goal of economic policy, to keep prices stable and that means to keep inflation relatively low; now, last year, for whatever reason, they decided to change that and they didn’t watch what was happening for inflation. They were more concerned with helping the federal government finance those huge deficits that they incurred and also to make sure the economy is operating at full employment, and they put inflation sort of on the back burner.
“Because they waited so long—in my view, they’re about a year behind the curve—the inflation problem has gotten so severe: It’s up to 8.5% on an annual basis now, and it’s going to get much worse, in my opinion, over the next couple of months, and that’s going to cause the Federal Reserve to raise interest rates dramatically over the next couple of months to try and bring that inflation rate down.”
But cyclical ebbs and flows are the nature of the beast. And no matter how frustrating, nerve-wracking or unpredictable things become, experts always have the experience, context and insights to help illuminate the path to the future, no matter what unexpected developments to come force the next big pivot into fruition.
Banks Will Do More With Less
Franklin Bank regularly presents its team with disaster-recovery testing, encouraging staff to critically assess how they could sustain normal operations in the face of massively disrupting events.
In February 2020, the purely hypothetical situation those routine drills presented to bank employees was a pandemic.
“We were anticipating ‘What if so-and-so from your department was really ill and couldn’t come back to work,’ like who would do that job, would we have enough people to have security protocols in place, and dual control and those things that, in the banking industry, are really important,” Cruz explains.
The secondary lessons came rolling in as the pandemic progressed, like how a controlled scenario can never fully anticipate unpredictable elements like human behaviors and the way multiple developments impact a singular occurrence, like the scarcity of laptops in the early days of lockdown as everyone scrambled to secure one for at-home work and schooling, or how many masks and how much hand sanitizer one operation needs. It’s a sobering reminder that no one, not even the most informed experts and entrenched insiders, has an infallible crystal ball.
But keeping a keen eye on trends—both market and consumer—does offer some clarity in helping banks move confidently into an unclear future. Of course, keeping clients’ lines of communication open to ensure that their needs and preferences are being heard is a big part of that, too, aided tremendously by the very tech banking clients want.
“While there is no one-size-fits-all solution for serving your customers, advances in technology have enabled banks to better serve customers through their preferred channels,” notes Shelly Kavanagh, senior vice president, director of retail delivery at WSFS Bank. “Banks can leverage data and analytics to drive efficiencies and improve products and services they offer their customers. Through our investments in technology, we’ve been able to better understand our customers’ needs and provide more personalized messaging and offerings.”
The rise of online banking means less of a reliance on physical banking locations, leading those in the industry to believe that branch consolidation will continue to pick up speed.
“We’ve seen it already with the larger banks, where they’ve closed [branches] where they have a lot of geographic overlap,” says Cruz. “There’s most likely going to be less brick-and-mortar branches, and you might see less people doing more at a hub branch, where everyone [working] there can take loans, do accounts. And you may have satellite offices instead of another full-service office, where you’re just doing drive-up transactions. I think it’s definitely a discussion that all banks are having, including us, in terms of brick-and-mortar and their future.”
The increasing popularity of financial technology, or fintech, is among the factors influencing that continued evolution of branch locales, and has actually provided them with some tools to leverage the human connection only they can provide.
“To stay competitive, we use analytics and customer insights to drive our technology investments to ensure we’re meeting customers’ needs online,” says Angela Snyder, Fulton Bank’s chief banking officer. “Although we continue to invest in our digital offerings, we feel that brick-and-mortar financial centers are still very important—not only to provide the personal, relationship-based banking, but also to have a physical presence in the communities we serve.”
Staying competitive, however, can also mean working with fintech providers to make even more technology options available to the clientele clamoring for them.
“WSFS is very interested in what is happening in the fintech space and has established partnerships with innovative technology companies that we believe align with our goals and mission of service,” Kavanagh says. “These collaborations include some well-known companies like SoFi, Spring EQ, cred.ai and Upstart. This has enabled us to expand our product offerings and be on the front-end of some of the latest technology solutions being developed in the market.”
Finance and Investing
John Torrence, a partner at Masso Torrence Wealth Management, notes that while brokerage firms tend to gravitate more toward high-yield clients, “there’s no branch of a bank that you could walk into that doesn’t have an in-house investment person, that has become sort of standard operating procedure,” as those branches do fill an important niche.
“Banks, for the most part, do a really good job marketing themselves to the novice investor or the beginning investor or somebody who doesn’t have a real complex financial situation,” he continues. “That investment person will certainly have the time and typically the expertise to serve that less-complex investor who, quite frankly, couldn’t find that kind of service elsewhere since the general feeling among brokerage firms is that you have to take on ever-increasing larger and larger clients for profitability.”
Like banks, the rest of the financial world has been revolutionized by technology. Fintech has an array of benefits for those looking to manage their investments in particular and money in general, while also assisting their advisors in creating an “eerily accurate” investor profile.
“The financial sales software now is so amazingly advanced,” Torrence says. “The revolution of fintech has been unbelievable. For years, when you would have an investor, you would try to figure out how much loss they can take before they get unnerved. … Now the client actually sees what something like a ‘moderately aggressive’ approach looks like in real dollars so you can quantify their risk-tolerance far more than you ever could before—and the same with stress-testing a portfolio.”
If fintech has been heralded as a revolution, though, “the period of time that we’re in right now is far more of a sea change,” according to Torrence.
“We’ve gone through a few years where there was no alternative but to be fully invested in equities, and the equities that you wanted to invest in were your large-cap technology companies—Microsoft, Amazon, Apple and Google, that’s all you really wanted to own from about 2017 to 2020, that’s what drove the market. The returns were spectacular: If you were down, you were down for a month, and the next month your statement was higher and life was fantastic,” he explains.
But last year was the first time those once-guaranteed wins stumbled, betraying the reality that “any company that can double over a three-year period of time can lose 30 or 40% of its value in a relatively short span.”
The new challenges of rising inflation and previously stalwart investments now being eyed with uncertainty aren’t the only challenges today’s investors face. Keeping up with tax laws is another avenue rife with complexity and confusion.
“Tax laws do play a big part in making investment decisions, and as tax laws change, you should change your portfolio,” Busler advises. “Because sometimes these tax laws get a little bit complex and then somebody has to figure out exactly how it’s going to impact specific investments, there are what they call CFPs—certified financial planners—who, as your portfolio builds, I would strongly suggest seeking their professional advice on how to manage your portfolio, or talking to the wealth manager at your bank.”
Looking Ahead
While risk-averse investors might be especially nervous right now, economic uncertainty does underscore how invaluable it can be having a financial expert in your corner to help contextualize the blips and dips that seem little less ominous when considered against the bigger picture.
“People are panicked—they’re genuinely panicked,” Torrence says. “We have spent an inordinate amount of time in the last few weeks reminding people that these types of events are normal and if you go back and look, there’s been many times where you’ve seen your portfolio drop of this magnitude for a short period of time … in 2008 and 2009, you lost 40% of your equities, the stock market lost 40% of its value. And then it found its footing and you more than made up for that.”
It’s a good reminder that getting your own house in order as soon as possible is one way to find some peace of mind in turbulent times.
“My students say to me ‘Look, I’m 22 years old, the last thing on my mind is retirement.’ But you should get involved in wealth-creation as soon as possible, and most of that is generally started by coming up with an investment portfolio, which has a long-term to build wealth primarily for retirement purposes,” Busler explains. “In my classes, we teach the concept of compounding: The sooner you start putting money away, the more you’re going to end up having at the end.”
And while technology certainly has its place in the banking and finance worlds, there’s something to be said for the face-to-face interactions, education and value a local bank can offer its community.
“Technology has shifted how customers bank, and their expectations of their bank,” Kavanagh observes. “While many customers can perform their banking without visiting a banking office, there is no one-size-fits-all method of banking, so it is important to still maintain a physical presence to serve customers who prefer in-person banking and support the communities where we operate.”
“It’s helpful for entrepreneurs and business owners to have a real relationship with their banker—one that cannot always be achieved with technology alone,” Snyder adds. “It’s very important, particularly in underserved communities, to see a bank in the neighborhood as a source of financial literacy, expertise and assistance.”
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Published (and copyrighted) in South Jersey Biz, Volume 12, Issue 6 (June2022).
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