If you work in financial services, your job has changed dramatically in the last 20 years. Many of those changes are due to improvements in technology as it allows financial service workers to complete far more tasks in less time. The employees also have access to more information – and can access that information very quickly. Consider how finance has changed.
1. Financial analysts
No job in financial services has changed more than that of the financial analyst. An analyst may work for an investment firm and, in that role, researches companies and recommends their stocks or bonds as an investment. A bank analyst reviews a borrower’s finances to make a judgment on lending risk. Financial analysts also perform planning and financial forecasting for corporations.
Technology has changed the analyst’s role in several ways:
- Speed of communication: A company’s financial reports, press releases and other information are now available instantly. An analyst does not have to wait for a fax, phone call or newspaper to access information.
- Advanced report formatting: Improvements in software now provide the analyst dozens of report formats automatically. Instead of spending time creating reports, the analyst can review results immediately. Bloomberg is a leader in developing cutting-edge analysis tools for financial service professionals.
- Work of other analysts: An analyst can access all of the publicly-issued reports by any other financial service firm quickly. This helps the analyst compare their results with peers in the industry.
Today’s analyst can perform complex analysis quickly and more effectively.
Technology has changed the banking industry dramatically. Consider the lending process. Twenty years ago, most of the documents involved in a loan closing were only available in hardcopy. Financial statements, credit reports and signature pages could only be mailed or faxed.
Today, the process of closing a loan is much faster. Much of the paperwork is accessed and downloaded through the web. Improved IT security makes this process possible. An electronic signature for financial services simplifies document signing and makes it a paperless process. A bank can now analyze, approve and close a loan in far less time.
3. Securities trading
The process of buying and selling securities has also changed. Securities settlement refers to the buyer paying for a security and the seller delivering that security. The time it takes to settle trades has drastically decreased due to technology.
Twenty years ago, settlement for most security trades was five business days after the trade date – the day when the security was bought or sold. Investopedia explains that it now only takes three business days after settlement.
Nearly all securities today are in an electronic format, while physical investment securities are rarely issued. This change makes the process of delivery securities much faster. Rather than hold a physical security in a safe deposit box, nearly all investors own stocks and bonds that can be traded electronically.
If you work in securities trading, you can process trades much faster. Clients now expect to settle their trades and receive payments much faster than just a few years ago.
4. Private equity
Private equity refers to investors providing capital to private companies. A private company does not have stocks or bonds that are publicly traded on an exchange. These securities are not registered with the Securities and Exchange Commission (SEC).
Investors in private equity are typically high net worth individuals who are more sophisticated investors. They understand that they are taking more risk in exchange for a higher potential return. Private equity companies invest to take control and make improvements to the company, which are designed to increase the value to the company.
Private equity firms manage the business by installing better accounting and financial reporting systems. Technology changes now allow private equity managers to install systems very quickly, and managers can easily implement a change and monitor its results.
It’s likely that the company being purchased has much better accounting and finance data than they did 10 years ago. A private equity firm can access a great deal of information about a prospective investment, and quickly analyze the data. Technology allows the private equity firm to make an informed buying decision.
The Security Acts of 1933 and 1934 govern regulation in the financial services industry. Technology has improved the ability of the Securities and Exchange Commission to monitor securities trading. Regulators can oversee millions of shares traded each day on the exchanges to ensure that customers receive fair prices for buy and sell orders. SEC wants to guard against front running, which occurs when a securities firm places their own order before a customer order.
Regulators are also concerned about insider trading. An insider profits from a securities trade based on nonpublic information. Technology allows SEC to monitor trading patterns in a security. If news comes out that causes the stock price to change dramatically, a regulator can quickly see if anyone placed a large order right before the news was announced.
Technology has made financial service transactions much faster and has drastically altered financial analysis, banking, securities trading, private equity management, and even regulation. Technological change has also impacted customer expectations and the relationship between financial institutions and their customers. In the coming years, we can expect these changes to become even more pronounced and, hopefully, managed with increased efficiency.