It's a tough time to be in financial services. The list of companies failing or filing for bankruptcy in the past year includes American Home Mortgage, Ameriquest, New Century Financial Corp., and about 50 other lenders, firms whose largest creditors include some of the biggest names on Wall Street.

And the hits keep coming. Countrywide Financial, the nation's biggest mortgage lender, narrowly avoided bankruptcy by borrowing $11 billion. And Bear Stearns survived only after JPMorgan agreed to acquire the firm at a fire-sale price.

Meanwhile, financial services companies are laying off employees by the thousands. Citigroup plans to cut 9,000 positions, Merrill Lynch will eliminate almost 3,000 jobs, and Bear Stearns could see the elimination of 10,000 jobs once JPMorgan completes its buyout. According to a Bloomberg News estimate, financial services companies globally have cut, or announced plans to cut, 83,000 positions.

Grim Prognosis

Clearly the fallout from the rapid decline in U.S. housing sales and prices, and the subsequent collapse of the subprime mortgage industry, has been far-reaching. In April the International Monetary Fund reported that losses stemming from the mortgage crisis could hit $1 trillion. Unlike the economic downturn of 2001, firms are seeing sustained periods of unprofitability. For example, Merrill Lynch reported a $2 billion loss for the first quarter of 2008, its third consecutive quarterly loss. By contrast, the firm reported only one quarterly loss in 2001.

Even companies with minimal exposure to the subprime mortgage disaster reported a decline in profits in the first quarter compared to a year ago — MetLife, for example, reported a 37 percent loss.

And the financial services sector shows no sign that things will get better soon. “If you believe the analysts, they are slashing earnings estimates by a lot for 2008,” says industry observer David Geracioti, editor-in-chief of Registered Rep magazine. “Companies like Morgan Stanley, Merrill Lynch, and others — they are going to be earnings-impaired for a long time.”

Budget Surgery

What's going to stop the bleeding? In part, meeting planners. Many are being asked to cut budgets, cut attendance, delay programs, consolidate meetings, shift sites, and examine every expenditure. Interviews with senior-level meeting managers, suppliers, and other observers suggest that while the industry is not seeing wholesale cancellations of meetings or incentives, planners are preparing for all possibilities. And they're doing what they do best — getting creative.

“We started watching our meetings spend even prior to this subprime mortgage situation by scrutinizing internal meetings particularly,” says Gary Pearson, director of corporate meetings and events, AON Service Corp., in Chicago. “We've been looking at client meetings and events too, but not as heavily. We are continuing to have meetings but we're looking more closely at the number of attendees, the number of days, where the meetings are being held for travel purposes, and the food and beverage costs at those meetings.”

The companies getting hit really hard are those most closely tied to the subprime mortgage fiasco. “That business has just stopped,” says Carol Lynch, vice president, group global sales, Starwood. With the rest of the financial services sector, “we aren't seeing an increase in cancellations,” Lynch says, “but we are seeing constriction.”

Interviews with several meeting department heads at large financial services companies serve to illustrate Lynch's point:

  • One company had scheduled a 200-person, two-day meeting in Boston. In a budget-cutting move, the company turned the event into four regional day meetings.

  • A large Midwestern company is looking at changing its annual recognition conference by extending the qualification time and holding the conference every 18 or 24 months.

  • Another well-known firm is thinking about putting off two large upcoming incentive meetings until 2009.

“You're not necessarily seeing complete cancellations, but a different way of doing things,” says one planner.

Ounce of Prevention

“My meetings are being directly affected by budget cuts,” says Boston-based Jessica Crimmins, director of MetLife's Financial Solutions Group and the Business Strategy and Development Department, “Corporate is trying to be leaner and more efficient and wants to be proactive so that we don't have to act in the middle of a crisis.”

One of the large education meetings that Crimmins manages, the annual Financial Planning/MetDesk Symposium, attracts 400 to 500 attendees. This year's budget was cut by 30 percent compared to 2007. Crimmins achieved $150,000 of mandated cuts by, among other things, choosing a cost-effective destination (Anaheim, Calif.), becoming more creative — and economical — with food and beverage, and reducing spending on keynote speakers.

“Now comes the interesting part,” says Crimmins. “I usually get at least 400 people to this meeting. Am I going to get that kind of attendance this year?”

Incentive Immunity

While internal meetings and events seem to be taking a hit, the same may not hold true for incentives and client events. Countrywide Financial, poster company for the mortgage debacle, foreclosed on tens of thousands of loans and has laid off more than 11,000 employees since last summer. Adverse publicity about an upscale business summit the company had booked in Avon, Colo., in March prompted the company to cancel the event, as well as other similar meetings planned for the rest of the year.

But one industry planner believes that while the Countrywide example got a lot of notoriety, it serves as more of a cautionary tale than an example of what is happening throughout the financial services industry. “Everybody is still doing incentives and customer events, and they're going keep doing them because they are a necessary part of the business,” she says. “The ironic thing [about Countrywide] is that when they canceled, it probably cost them just as much in cancellation fees as it would have if they had held the event.”

“We're still doing incentives,” says the meetings department head at a large financial company. “And we still have some business units that are looking international, even with the weakness of the dollar. None of that has changed. But we are spending more wisely and looking closely at our budgets.”

Isabel Mahon, director of global sales, Fairmont/Raffles/Swissôtel, has seen a few programs from the financial sector “put on hold,” she says, “but for the most part planners are still booking incentives for the future.” That doesn't surprise her. “With an economic downturn it becomes even more important to incentivize,” she believes.

But companies are doing some fine-tuning when it comes to incentives. One meetings manager noted that his company has changed the qualification standards for a 2009 program. “We used to provide a benchmark qualification level, which meant that a qualifier could hit that level and coast the rest of the year,” he explains. “Now we've put a limit on the number of qualifiers, so we have a constant race to the finish, which means [producers looking to qualify] are more apt to continue to sell those products.”

Starwood's Lynch says that while financial services firms are continuing to book incentives, some of the programs are now “smaller and shorter. My sense is some companies are changing qualification standards so that we're looking at fewer attendees. And some are cutting costs by dropping a night from a program.”

Companies in the insurance sector may be feeling less pain. At Humana, there has been no impact on the meeting schedule as of yet, according to Chuck Lane, director, incentive travel and public relations, for the Green Bay, Wis., healthcare insurer. “Everything is full speed ahead,” he says.

Travel Gets Squeezed

“Even though everyone realizes how important meetings are for functions like professional development and training, when sales and profitability are down, meetings are among the first things that get cut,” says Edmond Seifried, a professor of economics and business at Lafayette College and chief economist and strategic advisor for BNK Advisory Group in Bethlehem, Pa. “If we're heading for a recession, that means the corporate share of money going toward meetings is in the balance,” he says.

Some think the recession is here. A recent survey of professional economic forecasters taken by the National Association of Business Economists found that 56 percent believe that a recession (defined as two consecutive quarters of negative economic growth) has already begun or will begin in 2008. This compares with 45 percent in a similar survey taken in February.

“We've had one recession in the last 18 years,” says Seifried. “2008/2009 is the first time since 2001 there's a good chance for another one. I think there's a 50 percent probability.”

In response, financial services and insurance companies are reining in travel budgets. A recent UBS Investment Research survey of 80 corporate travel buyers found that 42 percent expect their companies to spend less on air travel this year, up from 26 percent in a UBS poll six months earlier. Among the sectors in the poll, financial services firms reported the largest cuts.

And travel technology provider TRX, which tracks corporate and leisure travel bookings for companies like Orbitz and Expedia, is seeing the same thing. Trip Davis, president and CEO of TRX, says that many corporate travel departments are in a “wait and see” mode when it comes to budgets. At financial services companies, however, “we have seen the implementation of specific cost controls and a drop-off in both transient corporate travel as well as travel involving the hosting and organization of internal and external meetings. And it's not limited to New York. It's clearly affecting money service centers around the world.”

The numbers back him up. Depending on the firm, TRX has seen transaction level drops ranging from 5 percent all the way up to 40 percent. “When tough times hit,” he says, “travel is one of the first things that gets stopped.”

The silver lining in this case is that it's the companies with the direct ties to the mortgage industry that are seeing those large decreases, Davis says, while financial services firms with a more limited exposure to the subprime mess are seeing smaller decreases. And it could be worse. TRX has tracked this kind of information since 1998, and Davis says that when it comes to travel and meetings, the current economic situation is actually better than that of 2001.

“In 2001 you had a complete stoppage, and then a period of 90 to 120 days of ‘wait and see’ after 9/11,” he says. “It was a 10 out of 10 in terms of severity and reaction. Overall, I would rate 2008 a 1, with financial services more like a 5 or a 6.”

What Financial Services Needs to Learn from Pharma

In the Eyes of the Public, Perception is Reality.

Back in 2002, pharmaceutical companies were publicized as the bad guys. The economic environment was similar to that of today. The country was recovering from the 2001 downturn, and there was widespread outrage over the unethical business practices of companies like Enron and WorldCom.

Then along came the Kaiser Family Foundation Survey on Physician Incentives, which damaged the credibility of the pharma industry. Released in April 2002, the survey found that 61 percent of doctors received free meals, entertainment, and travel from drug companies that were spending $13 billion a year on promotion — including what were termed educational meetings and events. When that was combined with investigations into illegal kickbacks and pricing scandals, the pressure on the industry to reform itself became irresistible.

The Pharmaceutical Research and Manufacturers of America instituted a voluntary Code on Interactions with Healthcare Professionals in the summer of 2002 that stipulated that the locations of these events be “appropriate,” that meals provided be “modest,” that pharma companies pay only for healthcare professionals (not spouses) to attend, and that the core of the event be education. Later, in 2003, the Department of Health and Human Services Office of Inspector General complemented the voluntary PhRMA Code with its own compliance guidelines.

The immediate result? According to Tamar Hosansky, editor of Financial & Insurance Meetings' sister publication Medical Meetings, with the new emphasis on education, “things like entertainment, cruises, and golf events took a nose dive.”

The mandate to meet in “appropriate” locations also had specific implications for planners. According to a 2008 survey by Cutting Edge Information, 52 percent of pharma planners are prohibited from choosing 5-star facilities for their meetings and 43 percent are prohibited from using properties with the word “resort” in their titles.

The long-term impact on planners has been profound as well, Hosansky says. “Legal and compliance are taking much more of an interest in meetings,” she notes. And with increased scrutiny of industry practices at the state level, the amount of time spent on compliance issues continues to grow rapidly. “We've seen some planners complain that compliance issues can take up to 50 percent of their time,” she says.

So should the financial services industry expect to see a similar kind of situation with its regulators? After all, the Financial Industry Regulatory Authority and the SEC have in recent years cracked down on industry practices relating to sales incentives and contests, as well as gifts, travel, and entertainment.

“I don't think that regulators would necessarily increase their scrutiny of meetings and gifts/entertainment because of the credit crisis,” says Maribel Gerstner, chief operating officer, Allstate Financial Services LLC. “What I do believe could happen is that lavish events would get bad publicity for any financial services firms that have reported huge write-downs of their assets or reported big losses. This would be similar to the bad publicity financial firms get when they have poor financial results but still hand out big bonuses.”

And while most observers say that the financial services industry is not going to see the demise of incentives, programs and sites may be toned down in ways similar to those in the pharma industry. Jennifer Squeglia, CMP, a former planner in the financial services sector who operates her own company, RLC Events in Marlborough, Mass., believes that, in many respects, financial services planners are behaving in a way similar to that of their pharmaceutical-company peers.

“The perception issue, especially in a bad economy, becomes very important,” says Squeglia, adding that financial services companies, “that are in the business of handling other people's money,” need to be particularly careful in the kind of impression they give with their events.

Which means, according to Squeglia, that financial services planners may, for example, spurn a property with the term “resort” in its title, even in situations where that property could give them just as good a deal as a facility of a different name.

“You don't want to be seen as acting in a way that's too extravagant, particularly in this environment,” she says. “And that's very much part of the planner's decision-making process these days.”

Five Tips for Finding Value

Be flexible on location. Jessica Crimmins, director of MetLife's Financial Solutions Group and the Business Strategy and Development Department, moved her 2008 Financial Planning/MetDesk Symposium to Anaheim, Calif., and saved $50 per room, per night over her original location.

Go for the travel hubs. Gary Pearson, director, corporate meetings and events, Aon Service Corp., Chicago, moved an internal sales training meeting from a secondary city to Orlando. With better airfare and lower ground transportation costs, he saved more than $50,000.

Be efficient. Patricia Kerr, CMP, director, distribution sales support, Manulife Financial, Waterloo, Ontario, has senior management staff who spend 35 days a year at incentive conferences, With a new conference structure and schedule, she hopes to reduce the number of days lost to seven.

Manage your meals. Heavy hors d'oeuvres receptions rather than sit-down dinners; water coolers rather than bottled waters (an eco-friendly choice too!); $15 food vouchers for getaway days rather than $30 boxed lunches — all helped MetLife's Jessica Crimmins achieve significant savings.

Make it about the education. Toning down the entertainment portion of an event doesn't have to drive down attendance. In the case of Crimmins, her Financial Planning/MetDesk Symposium attendees have to cover their hotel and travel expenses, so the education component of the meeting is crucial. Booking inspiring (yet economical) keynote speakers, compelling educational sessions, and plenty of networking opportunities will make the meeting worth the expense and the effort for attendees, says Crimmins, while providing her company tangible benefits in return.