One of the legacy assumptions underlying the wealth management industry these past many decades is that due to its regulated nature, conservative approach and existence of big brands, the cost to getting started make it extremely difficult for outsiders to gain a foothold and create new businesses.
With the advent of robo advisors, however, we are now seeing Silicon Valley easily jump over these historical barriers to entry, opening the flood gates for just about anyone to be able to leverage technology to set up shop in a multi-trillion dollar space.
So the question becomes, what is the end game for financial services and technology? Many other industries and successful companies have been turned upside down by the inevitable onset of technology disruption, despite their best attempts. For proof, just go ask your neighborhood travel agent, taxi driver, book seller, video rental operator, music store proprietor, newspaper publisher – even your former fortune 500 company CEOs from Kodak and Blockbuster.
The big Internet giants such as Google, Apple, Facebook and Amazon have created tremendous value for their shareholders by identifying opportunities to wield their technology and innovative delivery models to transform industry structures from the ground up.
Particularly when they can find new ways to monetize their massive user bases by taking out the middleman, they most certainly will. Thus, it becomes incumbent upon the wealth management industry to truly take this technology threat to heart and begin planning for the “advisor of the future.”
The very good news story for advisors is that people remain emotional about their money and will always want to talk to a human about their hopes, dreams, goals and what they want to accomplish with their financial resources. The ability to have a financial professional listen to them and provide solutions in context of their goals will create the environment for a premium service, rather than becoming commoditized by transactions. Multiple studies and the advent of an entire new branch of economics have confirmed that behavioral finance will be key to differentiating the delivery of financial services from the robots in the future.
So, what can you do to prepare for the inevitable changes that lie ahead? The first is to take a page out of the playbook of the early robo advisors by providing them with an enhanced experience online. Account aggregation, graphical reporting, anytime, anywhere access to account information on all mobile devices, paper-less account opening – are all of the powerful innovations that are raising the bar for what advisors need to provide. The second action step is to focus on working with clients on a goals-based approach. The financial planning process provides a great framework to identify the client’s top issues and facilitate the solutions necessary to help them meet their goals.
The challenge, then, is to re-articulate the value add that human advisors provide so that clients truly understand the differences when the inevitable entry by the Internet giants happens on a large scale.
So, as Google continues to experiment with driver-less cars and Amazon is pondering drone-based delivery, the window is open for the wealth management industry to start planning now and making the necessary technology investments to re-build those barriers to entry. Otherwise, don’t be surprised when Apple’s Siri becomes one of the contenders for advisor of the future – you heard it hear first.