Here’s how the corona pandemic is already changing the financial services industry

adminonFebruary 6, 2023February 19, 2023Leave a Comment

Yext hosted a number of panel discussions with managers from leading marketing and digital companies across different areas of financial services to understand the impact of the Corona pandemic on the financial sector. In these discussions, we were able to outline findings from our research on industry trends and tell executives about the impact of the Corona pandemic on their businesses. Also discussed were changes in customer behavior and best practices for dealing with these new realities.

Financial services respondents anticipate the following impact of the Corona pandemic on their businesses:

43% of respondents report record levels of business activity and performance
14% report a sharp increase in activity, which has since dropped off again
29% report some positive, some negative impact on a variety of areas
14% report a predominantly negative impact

The Corona pandemic has profoundly changed the financial services marketplace. On 22. January, the U.S. officially confirmed the first infection with the novel coronavirus. What followed was a wave of macroeconomic and legislative impacts on all industries in the financial services sector. First, regulations were introduced on domestic isolation, which particularly hurt the travel and hospitality industries. Then the crash in oil prices began. On 23. February was also followed by the crash of the S&P 500. In response, the Federal Reserve System decided to (U.S. Federal Reserve System) on 3. March an interest rate cut to stabilize national liquidity. The result was a boosted mortgage market, leading small and midsize businesses to borrow heavily under the Coronavirus Aid, Relief, and Economic Security Act prompted. They can hardly process this information? This is how many of us feel, the economy was finally completely off the rails for weeks .

This illustration shows how one event led to the next. So customers took advantage of low interest rates to refinance their loans and investors had to adjust their portfolios accordingly.

A number of studies have examined how financial service providers are dealing with the COVID-19 pandemic. Here's what we heard [from financial services executives] in a recent Yext panel discussion:

71% of executives surveyed said that a reassessment of all strategic priorities and plans was taking place in light of the new Corona pandemic situation
57% say they are looking to cut costs
29% report planned investments in the digital sector

Gartner corroborates the above findings with its own study, according to which companies are shifting spending on media in order to invest the budget saved in communication and interaction with customers and in supporting their own workforce.

We would like to present some of these messages to customers here as examples:

Update of the availabilities resp. Temporary closures/absences of individual departments, offices or financial professionals
Specific notices under the COVID-19 pandemic, such as separate hours for seniors, security measures in business premises, etc.
Prioritize digital services or contactless transactions, z. B. Online booking for appointments, collection facilities, online banking and trading
Frequently asked questions about important announcements, such as those concerning small and medium-sized enterprises, mortgages, deferment of payment, or regarding. Assistance programs for customers and employees

Customers don't need promotional offers now, they need immediate support for critical business transactions. This is where it becomes apparent which companies can be relied upon and which cannot – who is coming up with innovative solutions and who is missing out on developments.

Without a doubt, we are dealing with a continuing development, the economic impact of which is far from being at an end. However, many leading financial service providers have already accepted the new realities as normality. 71% of executives surveyed believe that the Corona pandemic will have a lasting impact on customer behavior, while the remaining 29% are optimistic that old patterns will return. Currently, a wide variety of business strategies are being tested and, especially in light of changing business processes and interactions with customers, financial services providers are asking themselves questions such as:

"Have our financial cuts or our move to digital processes come at the expense of human interaction?"

"Did our company's strategy promote or inhibit adaptation to industry trends?"

"Do we still offer our customers sufficient opportunities to get support and do business?"

Financial service providers can introduce innovations quickly – it's practically in their blood. Among other reasons, this is why at Yext we particularly enjoy working with brands in this sector. The future will show that especially companies in this industry benefit from agile structures.

Tom Mansley, Investment Director at GAM

From a fundamental perspective, U.S. residential real estate markets are much more robust than they were before the crisis, says Tom Mansley, investment director at GAM.

Low volatility profile and solid yield the so-called mortgage-backed securities (MBS) have recently outperformed many other high and mid-quality securities. Since the financial crisis, during which MBS assets came under severe pressure, the mortgage market in the U.S. has undergone radical reform. "Investors looking for a well-diversified, global, fixed income strategy should take a very close look at the enhanced offering", Says Tom Mansley, investment director at GAM. "The opportunity is almost too good to pass up."

Lending standards are being closely monitored
MBS are securities backed by a pool of mortgage loans that give investors a right to the cash flows from those mortgage loans. Thus, they exhibit a low correlation to equities and traditional bonds. "Meanwhile, most MBS on the market are so-called 'agency securities' backed or recognized by the U.S. government or one of its agencies, Freddie Mac or Fannie Mae", says Mansley, who works in GAM's New York office. "But there are also non-agency MBS, which are bonds issued by private issuers such as banks, and these securities have no government guarantee." Therefore, they offer a higher rate of return, but also come with a correspondingly higher risk of default, he said.

If MBSs were still instrumental in creating the financial crisis, the requirements for the securities and the loans behind them would have improved considerably. "Lending standards have increased dramatically and are closely monitored", says Mansely. "Complete mortgage financing is no longer available, borrowers have to come up with a not inconsiderable down payment themselves." In addition, credit rating agencies now factor a broader range of possible negative scenarios into the calculation of MBS ratings.

Interesting investment option despite political uncertainty
"From a fundamental perspective, U.S. residential real estate markets are much more robust than before the crisis", Mansley says. According to financial market analyst CoreLogic, 2.6 percent of mortgage loans in the U.S. were more than 90 days delinquent at the end of last year and are therefore considered non-performing. "That is about one million credits. In comparison, the number of nonperforming mortgage loans during the height of the crisis in January 2010 was 3.7 million." In addition, the number of necessary foreclosures dropped 30 percent in 2016 compared to the previous year, he said.

While there is a possible scenario that under U.S. President Donald Trump, the government's influence on the mortgage and real estate market could diminish. However, this would be a slow process as the Trump administration clearly has other priorities at the moment. If legislative changes do occur this year, they will likely be aimed at reviving a larger and more efficient market for nonagency mortgage securities.

"The asset class currently shows demonstrable merits in terms of yield, capital preservation and diversification", says Mansley. "In our opinion, there are some really interesting investment opportunities here that you don't want to miss out on."

If you're self-employed, you may be able to write off rental deposit insurance through the home office deduction.

Annuity insurance may be tax deductible if you use part of your home for business and work for yourself.
You can only claim a deduction if you use the space exclusively and regularly for work purposes.
People who receive a W-2 or do not work from home do not qualify for the deduction.
Check out Personal Finance Insider's tips for the best tax software.

As more people have worked from home in recent years, questions often arise about what work-related expenses are deductible on your tax return. You may be wondering if renters insurance is one of them.

While it is not deductible for most taxpayers, if you are self-employed and work from home, you may be able to claim a deduction for a portion of what you paid for renters insurance.

Is rental deposit insurance tax deductible?

Homeowner's insurance is generally not tax deductible. After the passage of the Tax Cuts and Jobs Act in 2017, W-2 employees could no longer deduct labor costs on their federal tax returns. Business owners can, however, qualify for tax deductions on renters insurance, says Sarah York, staff writer and in-house tax expert at Keeper Tax, a startup focused on helping freelancers and gig workers maximize their tax savings.

When is rental deposit insurance tax deductible?

As with homeowners insurance, you can deduct renters insurance if you are self-employed and use part of your rental unit as a home office. However, your home office must be used regularly and exclusively for business purposes IRS. A tax-deductible home office could include a room in your unit that you have specifically designated for business activities.

When is rental deposit insurance not tax deductible?

If you receive a W-2 from an employer, you can't use it to deduct retirement costs, even if you work from home and have a home office, York says.

Even if you are self-employed, you may not be able to deduct rental deposit insurance. If your home office is used for other than business purposes – for example, as a guest room, it wouldn't meet IRS requirements and therefore wouldn't qualify for deductions, says Audrey Blanke, certified financial planner with Atlatl Advisers, an asset -management firm in Madison, Wisconsin.

Here's how to calculate your renter's insurance deduction

There are two ways to claim renters insurance deductions for your home office: the simplified method and the regular method.

Simplified Method

The simplified method is based on the square footage of your office. It allows you to claim $5 per square foot up to 300 square feet or 1.Deduct $500. If you didn't use the space for a home office throughout the year, that amount should be prorated.

"If you're a business owner with a traditional office that you rent out in addition to a small workspace in your home, you and your tax advisor need to consider the time spent in each space and the types of tasks performed," Blanke says.

Regular Method

The regular method is a little more complicated. It has two components: direct expenses and indirect expenses. Direct expenses are 100% deductible and include things like office supplies, the cost of a phone line or the cost of furnishings. Indirect expenses don't relate solely to your business, including things like your mortgage, property taxes, and renters insurance.

To use the standard method, divide the square footage of your home office by the square footage of your entire home. This gives you the base percentage of your home office that you can claim. Assuming your base percentage is 5%, you are allowed to claim a 5% discount on all office-related expenses, including tenant insurance.

Because the simplified method is easier to use, it may be a better option for people who want to save time and forgo the hassle of keeping track of all business expenses. It also minimizes the risk of an IRS audit, York says.

Here's how to claim the renter's insurance deduction

After you determine your deduction using the simplified method, you can claim this amount on Schedule C on line 30. If you use the standard method, you'll need to fill out Form 8829, Business Use of Your Home. Include your renters insurance on line 18 under "indirect expenses". After you fill out your form, enter the entire home office deduction amount on your Schedule C.

The home office deduction may result in increased scrutiny from the IRS. So be sure to include your actual business expenses. Remember that your home office must be used regularly and exclusively for business operations. In addition, office-related expenses must be used exclusively for your business to claim this deduction. York suggests using the simplified method if you have concerns about IRS audits.

"Don't be too aggressive," York says. "As tempting as it is to write off major home expenses, if you can't defend it when the IRS comes knocking, you'll face additional taxes and penalties."

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