by Tony Vidler
Disruption has long been a feature of financial services distribution. Disruption constantly occurs with new market entrants, product innovation, shifting strategic focus on the part of suppliers in relation to control or autonomy of distributors….but disruption has typically come from within the industry itself.
Some years ago I read a piece of LIMRA research which suggested that 50% of a practice’s income in 5 years time would come from people who hadn’t even started working there yet. I suspect the modern version of that is “50% of the revenue your practice makes in 5 years time will come from customers you don’t have yet“…or paraphrased: “a significant chunk of your future revenue will come from people who have not even heard of you yet”. Many in the distribution side of the industry they haven’t even really contemplated this as they have been distracted for quite a while by the other disruptions.
There was the dismantling and public listing of the mutuals, unbundling of life products, the rise of investment funds, the dawn and evolution of financial planning as a discipline….it has been a busy few decades for advisers. Then came the waves of “regulation” and common wisdom holds that this will continue to be the most disruptive influence a practice will face during the next 5 years. There is no doubt that it will be a disruptor, and force practices to do things in different ways. It will change the structure and the processes of advice providers.
So too will technology – and that too is accepted wisdom as in many aspects the technology disruption is already happening. In 10 years time much of what was considered innovative in areas such as “robo-advice” (which is often little more than automated trading or low-cost transactional facilities with zero advice) will be recognised for what it was: an iteration of the existing distribution. To date it has largely been about using features of technology to do precisely what the humans had been doing, albeit in greater volume, with more efficiency, and at lower delivery costs. Fundamentally though, this has not been innovation: it has been evolution.
It has been “doing things better“. That is not even as good as “doing new things” – which might be a working definition of innovation. Innovation is disruption. Evolution is just evolution.
Obsolete. Heck of a word that. Stuff we do today, and the ways we do that stuff, may become as relevant as an abacus is to todays accountant.
The big disruption is coming from consumers….Our clients. Arguably it has already started. The plethora of authors and podcasters convincing consumers that they can go it alone and don’t need the financial services industry at all, and the growing numbers of followers they have, suggest that the disruption has begun.
That is potentially a catastrophe, or it is potentially an opportunity.
Customers already figure out price points and products that are acceptable to them without the need for an adviser or institutional guidance. They are finding and using technology which makes a positive difference to them – and the more they use those sources the more of it they demand. Much of the technology which we in the industry use today (and convince ourselves is innovative) to deliver better customer service actually doesn’t. For example; How many platforms exist to cure an advisers back office problem, rather than deliver what the customer values?
Increased regulation may well have made the industry “safer” for consumers, but it hasn’t made it easier for them. This is the area that has certainly been a disruption, although without introducing innovation.
Customers are increasingly voting with their feet. If the price is wrong, or the service not up to standard, or a practitioner is using archaic technology which slows the entire process down, or there is simply too much paperwork and inconvenience then it is highly likely that more that half of the consumers WILL find alternative solutions.
The only entities who can survive such changes are those with mandated monopolies – and that is not advisers. A classic example of the sort of “business” which can effectively ignore disruption is taxation departments or state-run insurers (e.g. Accident Compensation Corporation here in NZ)…..where their standard expected service response time to an email enquiry is 15 days.
Try that in your practice and you will be left without any customers at all.
Professional services firms do not enjoy the advantage of protected arrogance. We do not have captive audiences who must suffer whatever systems, service standards and solutions we decide upon.
The greatest disruptor to todays practice will not be technology as such, nor even regulators. The great disruptor will be the consumer themself.
It will be their expectations which shift far more rapidly than our existing systems and process and thinking can adapt. The solutions to surviving new methods and rapidly rising expectations which make our known ways obsolete lie in:
Disruption will accelerate, and the most challenging disruptors will be the ones your business relies upon for its income right now. Start thinking like them if you want to stay in the game.
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