Financial Institutions: Are You Ready for the 5 Communications Challenges Coming in 2020?
Cutting through the noise has never been more challenging for financial institutions. Whether it’s shaping the corporate voice, managing leadership changes, launching new products, refining investment theses, or delivering these messages across new mediums – these tasks increasingly require talented marketers and communicators with strong financial acumen and a keen awareness for the market. But more change is forthcoming: exogenous forces like US elections, an increased focus on corporate purpose, and tectonic changes in technology to name a few.
As we close the chapter on 2019 and look ahead to 2020, our conversations with leading financial services firms have revealed a few common communications challenges.
I know you’re with Wall Street, but I’ll see you in Washington.
Wall Street and Washington are meeting more often – and with higher stakes. Debate surrounding the 2020 election will be designed to polarize and vilify. Candidate platforms will be built on taxing big banks and stopping Wall Street looting; billionaire showdowns and battles over “two cents” will continue. The financial services industry at large is facing an existential threat from the erosion of social trust, in part due to this political backdrop.
And while campaign platforms rarely translate directly into legislation, candidate messaging can shape public opinion, scar brand reputation, and destroy enterprise value in the process. Communicating with Washington requires a different style and approach. With the appropriate counsel, navigating the power dynamics and political nuances can produce positive and productive outcomes.
LIBOR: To be or not to be.
Beginning in 2021, banks will no longer be compelled to publish their rates to the LIBOR calculation. In response, US regulators have issued directives on the cessation of LIBOR in derivatives contracts and the Alternative Reference Rate Committee (ARRC), a group of private-market participants convened by the Federal Reserve Board, has recommended an alternative rate, the Secured Overnight Financing Rate (SOFR). But the road ahead is complex. SOFR is not a like-for-like substitute for LIBOR, and while it has billions of transactions supporting its valuation, the rate does not currently offer a term structure or any credit sensitivity.
Importantly, the LIBOR transition commences within the financial ecosystem but will ultimately touch the lives of millions of end consumers. Financial institutions face a two-part dilemma: first, how will they undertake the herculean effort of amending derivative contracts, mortgages, and loans that are based on LIBOR today? And second, how will they manage this enterprise-level communication about a reference rate that most people don’t understand, but affects the very fiber of their lives? Such a transformational shift must be communicated deliberately and carefully, with an eye towards fortifying confidence over the long term.
We agree there is a place for corporate social responsibility – we’re just not sure where it is yet.
At the August meeting of the Business Roundtable, over 180 executives signed the new Statement on the Purpose of a Corporation that outlines a broader set of societal stakeholders – including customers, employees, suppliers, communities, and shareholders. The Council of Institutional Investors responded adversely, stating that the Roundtable had essentially placed shareholders last. “Accountability to everyone means accountability to no one,” they wrote, with the worry that stakeholder governance and sustainability could become hiding places for poor management.
Should social purpose sit at the heart of corporations and of investment decisions, and what are the tradeoffs that shareholders must make for that focus? This is an ongoing discussion without a clear verdict, and the onus is on each company to actively shape investor and client expectations. One thing is certain: financial institutions will find themselves under increased scrutiny to demonstrate success towards this explicit promise of purpose.
Twitter wars and proxy fights.
Financial institutions and retail audiences have traditionally been treated as distinct and separate categories, often with different coverage teams and preferred mediums of communication. Now, this world is shifting. On the business front, private funds that were once exclusive to institutional and high net worth investors are now available to a larger audience through crowdfunding and pooled vehicles.
And communications strategies reflect this new reality of democratization: in a world dominated by news aggregators and social media feeds, Twitter wars can threaten company reputations; Facebook campaigns win proxy fights; and if your company doesn’t have a LinkedIn presence, some might suspect it doesn’t really exist. Gone are days when social media platforms could be cast-off as a “retail medium” – they are every bit a source of news as traditional news publishers, and they are infinitely more measurable in terms of impact and influence. Social media is an incredibly powerful tool if harnessed correctly; it can also be a divisive weapon if it is used against you without an effective defense.
Tech has swept in new ways of thinking, but it also magnifies our vulnerabilities.
The rise of technology has pushed financial firms to innovate and democratize. Trading, investing, lending, and payments are cheaper, more transparent, and more efficient than ever before. But the more of our personal information is stored online and the more reliant we are on these platforms, the more susceptible we are to cyberattacks. The more that the infrastructure of our financial system is built with a technological backbone, the more vulnerable we become to systemic risks. Once you move beyond the technical pieces, effective crisis recovery is all about communication.
Too often, senior leadership teams delegate cybersecurity issues to IT departments; only a handful of companies have assessed risk on an enterprise level and planned an integrated communications response. Anticipating and planning for cyber risks represent opportunities to build loyalty and trust within companies and with clients.
Have you considered the major communications challenges for your financial services firm in 2020? We’d love to discuss how we can help; read more about our financial institutions expertise.
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting LLP, its management, its subsidiaries, its affiliates, or its other professionals, members or employees.