With industry conditions being favorable for innovation, digital disruptors are set to transform the investment industry. Firms in the brokerage, retirement, wealth and asset management industries are grappling with multiple challenges as disruptors are resetting investors' expectations about investment management, advice, fees, and customer experience. In the era of hybrid disruptors, prevalent industry models are reshaping the traditional approach of doing business. However, a few areas are bound to be unfazed keeping their relevance intact and defying the force of disruptors.
The Financial Advisory is one of the areas which has been put on the defensive. But it will continue to leverage the efficiencies while delivering valuable personal guidance. Their supremacy will remain intact in view of few basic and inherent customer behavior as well as related relationship dynamics.
- All things being equal, people like to do business with people they like.
These characteristics of client advisor relationship will never change. Trust is the cornerstone of this business which is beyond the reach of machine and automation. Once the trust erodes, the customer is lost regardless of what technology is being offered. An advisor will have the sheer advantage over another who strives to win back the trust of the customer.
Disruptors like robo-advisors with low-fee structure can be attractive for the investors, particularly the younger lot, but the cost is not always the primary determinant in investor decision-making.
- Nurturing the needs instead of wants
The global economy will most likely come to a standstill if everyone starts targeting the needs rather than the wants. The growing business model aims on fueling the customers’ wants to propel the demands - the demand chain is nurtured and fed strategically bypassing the human needs.
Financial advisory business appears to be the only exception here - A true Advisor gives its customers what they need rather than what they want. This remains the core principle of advisory business, thus making it a long sustaining model.
The general investors want to see the upside swings in the security market with no scope of downside - the sell propositions matching this expectation is the easiest thing to do. However, if that is what one is selling, it is only a matter of time before the seller is in front of the cheated clients followed by the inevitable attrition. Advising the clients with some reasonable expectations as per their needs is a better business model.
- Fear and greed remain constant across the investor species
In the investment world, the human beings including the investors will live with, the two constants forever - greed and fear. They are ruled by their urge to be part of every bull run while constantly fearing the downslide. There will never be a wall street product created that can override greed and fear. A caring professional may provide help to a certain extent by giving a balanced picture of their expectation in the backdrop of the reality.
- Human advisor cannot be replaced.
This is an eternal phenomenon to remain with the wealth business. Traditional technology and disruptors offer new services in a scalable mode with cost saving formula but in the end a human customer wants someone to talk and discuss - to rely upon or even point fingers when the calculations go wrong. This kind of relationship-related privileges cannot be replaced by a machine. The advisors relying merely on their equipment won’t succeed eventually.
While each generation has its own approach and preference in financial planning, investing, and working with financial advisors, there is also much of common ground among them.
While the advisors need to meet the distinct needs of different segment of investors – like older clients demanding retirement solutions and the next-gen looking for adaption and innovation including the access to the latest technology, innovative products and client customized solutions. The need of advisors remain integral with the financial decision of the investors facing an ongoing generation shift.
An Intermediate Approach:
In order to win and retain the clients on their terms, the advisory firms need to embrace new technologies which also include human advisors. Combining the human touch of an experienced financial advisor with ease, scalability, and speed offered by robo-advisor platform can be a powerful combination for an advisor’s practice model.
For many advisors, the answer remains with deploying robo-model, freeing them up to spend more time working with clients while simultaneously cutting overhead costs. The enhanced client experience, online availability of information coupled with ease of transactions can see the relevance of disruptors but still they need the hand-holding and personal advice from a trusted human being.
Advice, on the other hand, is invaluable but only if it is delivered with meaning and meeting the clients’ needs honestly. Going forward they need to do a superior job of quantifying that value-add to clients. Their contribution in advising the clients on a variety of market or adverse conditions in the clients’ life cannot be replaced by a robo-advisor.
- Digital disruption Threat: Forrester
- Embracing change as Opportunity : State Street Global Advisor