Consulting in the financial services sector is often confused with financial consulting. The former involves the hire of a management or business consulting firm to address specific business or management related issues. The hiring company in the financial sector is typically a bank or an asset manager or an insurance company. The latter refers to providing advisory services on topics such as how to investment money or making of a retirement plan or how to manage excess liquidity or alternatives to improve cash flow.
Financial services firms operate in an extremely dynamic business environment – aggressive competition, sudden changes in regulatory procedures, rapid innovations in the technology space & the pressure to keep evolving their service offerings. Add to this, the war for quality talent. Given their pursuit of business growth and keeping abreast of the daily peaks & troughs of the financial market, several financial services firms choose to partner with strategic consulting firms to manage the ever-evolving business tides.
About two decades ago, the financial services sector had clearly defined reasons that consulting firms were hired for, viz. accounting and tax advisory, cost-cutting measures, and operational efficiency. In the present day, financial institutions are driven by external factors such as the rapid upsurge of financial technologies or a dramatic rise in the regulation of financial markets or to aid with staffing of projects due to a shortage of capacity. Today, consulting in the financial services sector is driven more by external processes & market factors instead of internal developments, which is how it was a few decades ago.
Today, there are four primary reasons that the financial sector hires consultants. Topping the list is undertaking wide-scale digital transformations. Today, the digitalization process determines aspects such as the pace of growth of a financial institution, its market share and even its survival in the industry. According to a joint report from the World Economic Forum and Deloitte released in 2015, the future banking experience must be fully virtual, be customer driven, meet high quality & security standards, be fully customized and be externalized in order to ensure a continuous online service. Given the continuous and rapid innovations and evolutions in the digital space, financial institutions hire expert consultancy to partner with them.
Managing regulatory changes & shifts is a second major reason for consultant hires. Given the pace of technology and shifts in the business environment and with transactions moving online more and more, regulators keep changing processes or outlining fresh requirements. With this wave of new mandatory requirements, consulting firms have become the key partners of financial institutions when they need to develop new software or tools, implement new systems, interpret new legislation from legal and applied perspectives, optimize capital consumption and strengthen risk management teams.
The third major reason is staff augmentation. This stems from two areas – where skills are present internally, but they need to augment their capacity and where skill sets are not present internally. Due to the shortage of quality talent amid changing labor & hiring laws, availability of specialized skill sets, shift to new age professional pursuits, the rise of the gig economy, regular burnout & rapid attrition rates, the financial services sector partners with Staffing Consultants to compensate for headcount improvement or to augment below capacity workforces. Several times, financial services companies admit to not having the skills needed for a particular project and, hence, partner with consultants to help them access the requisite employee capital they need. Rather than force-fitting internal talent to straddle specialized job roles, financial services firms rely on staff augmentation specialists to fill the gaps.
The fourth big area is Product Development Analysis. As the financial services sector looks to broad base their service offerings, viz. launch new products, diversification or maybe expand a portfolio of services, or explore new market segments or geographies, they look for data points to support these decisions. Most of these informed decisions are made based on technical analysis of data that leads to the identification of trends, patterns, or opportunities, for which consultants are hired, so as to back & support these decisions.
In this sector, in the minority, are projects such as a management structure redesign or the commonly feared and unpopular cost optimization or the assessment of brand impact and recognition, or the implementation or updating of software and the like.
Given the new ‘ongoing-pandemic’ reality, that has redefined most things, including the way organizations work, independent consultants and boutique firms have been gaining popularity, given their propensity to drive down pricing and provide quality, specialist work in short periods of time. Unsurprisingly, the need for flexibility has been the chief driving force for the preference of small firm consultancies over large firms, directly a result of the growing trend towards flexibility in business models.
EZDynamic is a boutique management consulting firm, with an entrepreneurial spirit that is driven by results. We provide client-centric solutions for Financial Services firms, helping them achieve their business, strategic, and technology goals.
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