And Yet the Financial Industry Moves
Insights from the perspective of a lateral entrant
Click here for a German translation of this article.
Since I moved into finance, I have regularly felt the need to justify my career choice. Can you relate to that?
The money business has the utmost poor reputation. People spontaneously think of dirty money in Swiss number accounts, unreasonable bonus payments to bankers, tax avoidance strategies such as those revealed by the Panama papers, and excessive speculation in the financial markets at the expense of investors and the general public. Many people are justifiably disgusted. They regard the loan from their local bank, their pension insurance or their (well-advised conservative) capital investment to be a necessary evil. Beyond that, they want to have as little to do as possible with the financial sector.
As a protagonist in the financial industry, I feel a certain unease.
That was roughly my approach, too. And yet, one year ago, I ended my scientific career and decided to take an active role in precisely this industry. I am now a protagonist in the financial world, and as such, now and then, I feel a certain unease. Hardly anyone from my previous environment works in the financial sector. Many are active in the medical or educational field or in research and development. They regularly show me their view of the industry from outside. And yet the worst part is, that based on the insights I have been able to gain myself, I can tell my friends: For most of the allegations that are made, there are plenty of practical examples and evidence. Some things are even more shameful than you might think.
The industry also seems to be deadlocked to a certain extent. It has created a system that has made all the well-known undesirable developments possible. In the attempt to adequately deal with the resulting problems, it has gagged itself with a flood of regulatory requirements. It partly seems that it has lost its way in the small game of damage limitation. The imbroglio of conflicting interests is obstructing many an established player from having the necessary foresight for today’s (but also for the traditional) tasks of the industry. Even, often the necessary courage or the will to tackle the challenges with suitable modern means is missing.
However, the conscientious and efficient fulfilment of these tasks belongs to the most fundamental things any society needs to organize. This is another insight I came to in my first year in finance: Without a national currency, without the often criticized creation of money ‘out of nothing’ through credit extension and without markets for trading investments, we would not have reached the level of economic prosperity on which we live today and could not sustain it. Alongside all the evident problems of our financial system, I have also become better acquainted with its purpose and have learned to value it.
It’s not about abolishing the system. It’s about doing things properly.
So, the aim cannot be to abolish all this. Instead, it is about doing things properly. In other words, we need to exploit the available possibilities in a manner and to such ends that represent an added value to society. To this end, financial institutions do not have to transform themselves into non-profit institutions. Whoever offers useful services in all conscience may, of course, demand fair payment for them.
I did not make my move out of charitable motives either, but because I had the feeling that I could make a difference. Growing financial technology companies are cutting the ground from under the incumbents’ feet, mostly by making intelligent use of the possibilities offered by digitization. In doing so, they take advantage of the notorious inertia of large, established corporations. These would, in many cases, have to promote their cannibalization to consistently implement digital solutions. Quite understandably, they are hesitant. Another reason for the success of the new fintech companies is that they have made customer orientation their motto in large letters. This is a positive development. It has gained enormous traction in the last ten years and seems unstoppable.
Beyond that, there are many other exciting and — from a social point of view — precious developments. I see, read and hear about sustainability criteria for investments (so-called ESG criteria: environmental, social, governance), about ethical banking and impact-oriented investing. There is talk of stakeholder value and customer benefit, of responsible corporate management and democratic governance, and also of complementary, more socially minded monetary systems. There are a couple of actually new and potentially revolutionary ideas buzzing around.
And the development necessarily must be revolutionary in many respects. For example, much more private capital needs to flow into sustainably acting companies to achieve the seventeen ‘Sustainable Development Goals’ set by the United Nations. In 2017, members of the Club of Rome proclaimed the ‘investment turnaround’. How can this turnaround be achieved? From my point of view, the increase in customer orientation in the financial sector can constitute a powerful lever. It could be the catalyst that sets big money in motion. Where the journey is heading — or more precisely, where the capital is flowing — is determined by the customer. And often that’s you. Yeah, you out there! Money indisputably makes the world go round. Therefore, we have a significant influence via our investment decisions — and by the renunciation of active decisions!
A renewal of the financial sector is a long-term project. But things are moving.
These and many other developments in the financial industry affect all of us and should, therefore, interest all of us. There is already a sober awareness within the sector of the undesirable developments and shortcomings. And this awareness seems to keep growing. In addition, however, the willingness of the entire industry to move has also been growing recently. It appears to me as if I have embarked at a moment when a shift towards more sustainability and fairness is not only possible but also when a willingness for such a transformation is spreading.
Any fundamental change in the established complex financial and monetary system brings with it manifold and potentially unforeseeable consequences. Therefore, radical demands, motivated by frustration over the current state or by reverie and blind infatuation with technology, are out of place. Prudence is the order of the day. The right starting point for this journey is not the call for a clean sweep, but a reason-driven and goal-oriented debate culture. Informed discussions can help us to attain a healthy awareness of the status quo, which in turn is the basis for enough openness towards changes that are overdue and already possible today.
A renewal of the financial sector is a long-term project. But we can’t let that scare us off. I, for my part, am not afraid of long-term projects. I worked as a physicist in nuclear fusion research for over ten years. Realistically, this technology is not expected to contribute to the global electricity supply before 2050. In comparison, the financial sector is currently moving like a startled weasel and the presumed short time scales for possible upheavals are spreading a real hectic pace in some companies.
So, I can tell you that things are moving. Indeed, we are experiencing severe warping. I am — a little accidentally — right in the middle of it. From this position I will try to make my contribution also to a better understanding of the necessary or desirable developments. And give insights into a possible future. We can only proactively transform what we understand. Perhaps, the unbiased perspective of a lateral entrant, can inspire some self-effective experts to come up with or pick up on innovative ideas. And maybe I will be able to take some interested laymen with me on this journey I have embarked on.
Join in and engage! Now we can contribute to improvement, to more sustainability.
The bad reputation of my industry is self-inflicted and not unfounded. However, the industry is in upheaval. And in times of upheaval, when traditional structures are undermined, partially disintegrated and have to be partly rethought, there is the opportunity to leave the position of the passive observer or a powerless tag-along and intervene creatively. Solidified structures suddenly become malleable, deadlocked dependencies become resolvable, and newly to be established processes can be guided in the desired direction. Join in and engage! Now we can contribute to improvement, to more sustainability.
These are exciting and promising times in my industry. Stay tuned.
Martin Oberkofler, Chief Legal Officer at SYNTRIX
www.syntrix.capital
https://www.linkedin.com/in/martin-oberkofler
