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Navigating Regulatory Waters: Friend or Food? How To Stay Ahead in Financial Services

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Feedback from CEOs and Chairmen post-Federal budget, and in the month since our last briefing, shows the destabilising impact of COVID19 change but also unexpected (but arguably predictable) change in the economic and policy environment. Globally, and across clients, we can see that those who had some planning in place for a pandemic had a better response than those who didn’t. Our advice is to actively identify potential blindspots heading into 2021. With this done we should all find 2021 friendlier and more manageable.

1. Market feedback

Intelligence about the impact of COVID-19 on specific financial services sectors, not published by media.

A. Federal budget – “a war time budget with ideological foes in the Government’s sights

A major development for super funds and fund managers (albeit not all realise this yet) was the changes to superannuation announced in the 2020/2021 Federal Budget. As a result of proposed measures some funds face a more uncertain future.

As a reminder, the changes to super, possibly targeting pension fund activism, include:

  • Restriction of member acquisition and creation of multiple accounts by ‘stapling’ members to their first fund – this will benefit large incumbents who serve a younger member base as long as they meet government-set performance standards
  • Introduction of performance benchmarking, by government, that may well restrict funds’ ability t take new members if they don’t’ meet standards….
  • Restriction of funds to take a position on ‘non-financial’ matters such as ESG

This has clear direct implications for funds, including those who don’t currently meet performance standards and who some insiders say face an impossible battle to do so before restrictions are imposed. The changes also create some flow-on effects for fund management partners.

It may well be, for example, that that ESG focused super funds will not drop ESG as a theme, but will have to find other ways to “get the job done” – in part through their fund managers.

Some in the industry believe COVID-19 has served as a cover to achieve a much-longed for reversion to “how things used to be”; less power to super funds would potentially achieve a return to a situation in which boards, investment banks and government have more control of capital, with clear implications for the economy and how the social impact of funds would be impacted.

More generally we’re hearing institutional capital raising is challenging for many fund managers, particularly those whose clients (the largest funds and the least liquid funds) face their own liquidity issues.

B. A push to private markets and the continued growth of trading platforms

The proposed changes to super are just one factor driving a wider push on fund managers’ private equity (PE) capabilities , and growth plans for many existing PE players. Many considering launching a PE offer are trying to get it into market rapidly, before end of year, or planning a February/March launch.

Meanwhile at the very other end of the market, retail traders persist in piling into margin loans, CFDs and straight trading platforms. Anecdotally, the extraordinary recent spend by CFD providers shows how a certain cohort of Australians are investing their money outside super. Off the back of the increased trading activity, we’re seeing more providers coming to the market (look at eToro’s TriNation rugby sponsorship and seemingly huge marketing push) and spending to acquire investors. Note that ASIC are making both public (jawboning in media) and direct (loss warnings at the start of all CFD marketing) moves to curtail this.

C. Start up funding - Q3 deal flow

Right Click Capital’s recently released Q3 Internet DealBook reported the total value and number of deals in Q3 2020 was significantly down on the same period last year. The report speculated that during COVID-19, some investors remained on the sidelines, possibly turning away from opportunities that are COVID-19 affected. Some of these investors moved to areas seen as less impacted by the pandemic such as tech stocks and private markets. Now, VCs are seeing angel investors return to the market with new appetite to invest in early stage tech companies.

Other reasons for the general decrease in deal flow might include investors focusing on their current investments or keeping their fundraising efforts private. Anecdotally, we’re hearing that the same thing is happening on the other end of the market with fund managers.

2. Management responses

This section outlines how CEOs and their leadership teams are responding

A. Doubling down on strategy

Clients and those others we talk to are doubling down on the strategies they think are well positioned for the year or so to come - for example, fund managers moving to private market. At the same time, you’re all still dealing with work from home, and the uncertainty of what that looks like. Some of that has to do with the government restrictions on where people work and traffic flow.

B. Dealing with WFH "lag" 

WFH “lag” is a thing, still. While some of you have been able to move into a new normal that feels quite permanent, we’re hearing from many that you’re still struggling with the challenge of WFH slowing down management teams operationally.

You continue to report that restructuring teams and getting projects done has been harder during WFH, there’s still a lack of watercooler or osmosis conversations, you’re still reporting that your people feel isolated or are constantly surrounded (whether by family/flat mates or Zoom), and your conference schedule remains a problem.

On a positive note, you’re happier with the tools you have, whether these are systems such as miro, mural, Google’s Jamboard or re-equipping your physical environment (home and office) to allow more “always on” conversation.

3. CEO Guidance

This section provides our guidance on management and communication responses

A. Don’t wait until February/March 2021 for your new product launch

We’re seeing many businesses talk, as they would in a normal (non-COVID-19 period), about launching a new product or offer with a go-to-market in February or March next year. Based on what we’ve seen in 2020, this could be a terrible strategy because:

  • As businesses review their strategy, and Melbourne emerges from lockdown, November to January are important months this cycle. Waiting until late Q3 to launch sees you miss this increased market momentum
  • By February, journalists will be busier, media buy inventory more expensive and social media more crowded – so gaining media cut through will become more challenging for your launch
  • Our advice for those planning to launch in February or March is: start your perceptual work now to ensure you’re well positioned with your target audience by launch date, and can differentiate yourself from others following a similar timeline.
B. Check for blind spots

As we have done throughout 2020, we’re continuing to advise that you dedicate some time to scenario planning. Why? Because many haven’t done it yet.

  • COVID-19 is a textbook case for how scenario planning can help you shape your market response. Globally, we can see that those who had some planning in place for a pandemic had a better response than those who didn’t
  • While scenario planning remains pivotal, it isn’t being done at a high enough quality level to predict the future and prepare.
    • Take the budget changes to super: the government “having a go” at super shouldn’t have been a surprise
    • Many failed to predict the changes announced on 6th October 6 despite (as one client said) they were “tapping the industry on the shoulder before the punch in the face”
  • So use a facilitator (engage some external capability with political and commercial acumen) to plan so you’re not blind to the readable signs, and help you co-create your strategy. If this is done, you should find 2021 friendlier and more manageable.
C. Rethink your partnerships
  • If you’re working with external partners, talk to them about the work you do, and how you do it together
  • For those brave enough to take it, there’s a great opportunity for innovation and a “game-changer” approach. We’ve opened up conversations with clients about rethinking – and evolving – how we work
  • We're thinking of pre-2020 ideas of how engagements, commercials and relationships as potential 'legacy', and actively reimagining them for 2021.

4. Resources

The Right Click Capital quarterly Internet DealBook reports on the volume of startup funding deals in Australia. To receive the newsletter fill out the form on their website

Popular collaboration tools include miro, mural, Google’s Jamboard.

5. Appendix: How to help us help you

This briefing is collective intelligence gathered, anonymised and shared with you by my firm for the greater good. We’ve taken the view, based on client feedback, that the collective benefit to you all takes precedence over normal competitive pressures at a time like this. 

This is an excerpt from one of our client COVID-19 CEO response briefings. For more COVID-19 response resources and guidance, visit our COVID-19 Response page. 

If you’d like to discuss adjusting your communication strategy for the current times, please call us or fill out our contact form here.

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