Aug 29 2019
The 2008 global financial crisis caused several notable investment banking firms to collapse, including Lehman Brothers and Merrill Lynch. Since 2018, the industry experienced an uptick in activity despite profits still lagging and the regulatory environment remaining persistently stringent. In fact, 2018 was the first year since 2012 in which revenues increased in both trading and advisory businesses according to Deloitte’s 2019 Banking & Capital Markets Outlook.
“Global M&A activity reached $2.1 trillion in the first half of 2018, a 36% year-over-year increase.”
– Deloitte 2019 Banking & Capital Markets Outlook report.
Investor Uncertainty Continues to Rise
Unfortunately, what goes up must also come down. Investor uncertainty, also known as the fear index, is expected to increase by 1.6 percentage points over the five years through 2019 (data source: IBISWorld). The fear index is anticipated to continue rising in response to normalizing interest rates, which have been historically low, and the growing possibility of trade wars between the United States and major trade partners such as China.
These factors, among others, will create an atmosphere of uncertainty among investors and businesses, putting investment banks in a precarious situation. Investment banks will need to protect their deal flow pipeline when valuations inevitably, fall.
Considerable change is underway in the investment banking industry. According to Deloitte, the balance of power is slowly shifting to buyers. As in many sectors, buyers are demanding more: more personalized services, more automation, and more collaboration. When falling valuations meet rising customer expectations, the deal flow pipeline hangs in the balance.
A proactive solution to the threat of rising customer expectations and falling valuations is to pivot away from the company and product focus toward a more client-focused strategy.
To become client-centric, investment banks will need to:
Not only do investment banks need to identify client needs, but they also need to anticipate them and proactively assist their clients in managing those needs. Taking a page out of the sales handbook, investment banks should also source and implement systems to actively measure client experience. These systems can include applicable metrics such as customer satisfaction (CSAT), net promoter score (NPS) and even the customer effort score (CES). Improving client experience will perhaps be the trickiest step of all. Client experience refers to the overall interaction between a customer and an organization. However, in the investment banking industry, client experience relates more to an integration of services for the customer. Traditionally, investment banking services have been siloed, lacking the cross-functional communication needed to create a one-stop shop environment for clients. For many years, this approach served the industry well. However, due to rising customer expectations, siloed services will no longer be profitable or attractive to clients.
To be fair, investment banks need to undertake several strategic shifts to remain competitive, maintain their differentiation, increase trust and protect their deal flow pipeline. However, customer expectations tend to be the most easily overlooked factor, despite client focus being one of the most important strategies.
While you’re figuring out how to best address customer expectations for your organization, we’ve put together the article Potential Deal Flow Goldmine: Top 5 of the Fastest Growing, Overlooked Industries to give you some ideas and inspiration on where to focus your efforts next.