Careers in the Financial Services Industry - Case Study Example

Macro Environment (External) Analysis of Financial and Mortgage Services Industry Introduction The Financial and Mortgage sector is the heart of all economical decisions taken by the government. It creates a base and a starting point to analyze the sector to find out any transactions, dealings or contracts affecting the life of the citizens and the economy and wealth of the nation. This industry includes the commercial banks and building societies dealing with transmission of money, loans, mortgages, pensions, insurance, trade finance, stocks and shares and a wide range of other investment and lending services amongst others. [1] The financial services industry employs about 6 million people (5% of the US workforce) and accounted for 8.3% of the GDP (in 2004). [6] Analysis of PEST (Political, Economic, Social and Technological) forces will give us a true picture of what this industry is involved in and what has been going on. Furthermore it will give us an external environment overview of the strategic tools used to understand market growth or decline, business position, potential and direction for operations. Political/Legal Forces Basel II Regulations The Basel II Regulations are expected to reshape the entire financial services industry by creating new classes of competitors based on their risk-measurement and value-measurement technologies. These guidelines pose serious threats to both real estate lending by commercial banks and the viability of the entire industry since higher capital charges could reduce available capital for commercial real estate. [5] Sarbanes-Oxley Act Sarbanes-Oxley developed a private, nonprofit corporation, to ensure that financial statements are audited according to independent standards. It also holds chief executives and chief financial officers directly responsible for the accuracy of financial statements. The law seeks to rule out conflicts that would make securities analysts less than objective and gives board audit committees rather than CEOs or chief financial officers full control of auditors. [3] Regulations for Mutual Funds The new regulations for mutual funds to have 75% independents in the board of directors and have an independent mutual fund chairman of the board represent one of the most drastic changes. These rules will require the search and hiring of new members to meet the regulations as a result, a shortage of potential candidates may be experienced. These regulations can be good or bad for a company depending on the quality of decisions taken at the time of appointing new directors and chairperson. [7] Hedge Funds Regulations With the increasing growth of hedge funds in the market, the regulations to monitor them are becoming more practical in the near future. [6] Regulations for New Entrants Some regulations regarding the minimum capital requirements for a company act as a barrier to new firms trying to enter the industry. Along with this investment and technological input costs are difficult to meet for these new entrants. [6] Economic Forces Federal Interest Rate Hikes The changing of the fund rate has the most impact on short-term rates. The raising or lowering of this rate will affect interest rates on mortgages, credit cards, and home equity lines of credit. When the target rate is raised, consumers pay more interest. When the rate is lowered, they pay less. These rate hikes will also affect credit cards since credit card interest rates are tied to the prime rate, which is subject to the actions of the Fed. As the rate increases tend move slowly to credit cards because issuers re-price cards once a quarter, the rate increase will be seen in the near future. [8] Declining Personal Savings Rate In September 2005, the personal saving rate as a percentage of disposable income was negative implying US consumers spent more than 100% of their monthly post-tax income. This decline in savings can be bad for the economy as there will be lesser investment and the financial sector can suffer. [4] Compliance Costs for Small Firms U.S. businesses spend $497 billion annually to comply with federal regulations, with the greatest cost burdening falling to small business, according to a study released by the Office of Advocacy of the U.S. Small Business Administration (SBA), Washington, D.C. These costs also act as a barrier for small firms to prosper and sometimes it also leads to a firm going out of business. [2] Social Forces Increasing minority Population With the influx of migrants and increase in the minority population, the financial industry will need to cater to a wider and more diverse market. The needs of a diverse market will have to be targeted more specifically and customized products will have to be offered. [6] Retiree Population on the Rise The technological inputs in medical sector have increased the overall life expectancy. With this the number of people who live for many years after they retire is increasing. The financial institutions will have to cater to the needs of such individuals by offering more savings and fixed and reliable interest accounts as they want their future to be financially stable. [6] Customer Loyalty Individuals remain loyal to a company when it continues to provide them with a good service and continue to provide value addition to current services. It is therefore important to maintain good personal relationships with all customers. [6] Technological Forces Globalization The technology, namely the internet, has shrunk the distances and converted the world into a global village. Financial services and solutions can be offered to customers from all around the world. Outsourcing and off-shoring in financial services industry has increased many folds due to lesser costs involved. [6] Security Theft of ID of financial accounts has made the customers vary of putting their resources into banks etc. With the technological revolution in biometric and security, customers’ accounts and personal information has become more secure and therefore a shift towards financial institutions has begun again. [6] Online Transactions on the Rise Customers have become more interested in conducting business online. Insurance, funds transfer, stocks and shares can all be transferred and dealt with just a single click. [6] Plastic Money Technology is changing it out of all recognition. Just 30 years ago there were no credit cards or ATMs. Now most transactions are done through debit or credit cards. It is expected that in the near future all monetary transactions will be done through on a plastic card, such as VisaCash, replacing the coins and notes altogether. [1] Works Cited 1. “Careers in the Financial Services Industry”, Courses Careers, Retrieved on November 3, 2007 from http://www.ca.courses-careers.com/finance.htm 2. Cross, Lisa (2001) “Small firms pay bulk of compliance costs”, Graphic Arts Monthly, Retrieved on November 3, 2007 from http://findarticles.com/p/articles/mi_hb4723/is_200112/ai_n17294857 3. Fass, Allison (2003) “One Year Later, The Impact Of Sarbanes-Oxley”, Retrieved on November 3, 2007 from http://www.forbes.com/2003/07/22/cz_af_0722sarbanes.html 4. Garner C. Alan (2006), “Should the decline in the personal saving rate be a cause for concern?”, Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-28 5. LaRose-Senne, Chere (2004) “Why the Basel II Accord Is Worrisome”, Retrieved on November 3, 2007 from http://nreionline.com/commentary/washington/real_estate_why_basel_ii/ 6. Parmar, Uday (2006), “US Financial Services Industry: An Analysis”, Research Connect, Retrieved on November 3, 2007 from http://www.researchconnect.com/buyreport/report_17726.asp 7. “SEC Mutual Fund Board Regulations” (2004), Mutual Funds Advisor, Retrieved on November 3, 2007 from http://www.mutual-funds-advisor.com/mutual-fund-basics/sec-mutual-fund-board-regulations.html 8. “The federal reserve and interest rates” (2007), Porias, Retrieved on November 3, 2007 from http://www.porias.com/federal-reserve.html Read More