Technology and its exponential growth are rapidly changing how the financial services sector will operate in the future. In fact, the financial technology (fintech) revolution threatens to demonetize the cost of financial advice to almost zero. So, if you're a financial planner or a financial advisor under 45 years of age, you will need to start redesigning your practice to utilize these new technologies and use them to create unique value for your clients as the cost of financial advice drops precipitously.
Dr. Peter H. Diamandis, an international pioneer in the field of innovation from Culver City, Calif., is a leading expert in exponential technology. He describes the "The 6 Ds of Exponentials" in his New York Times bestselling co-authored book, Bold. These 6 Ds, listed below, explain effectively how there's a chain reaction of technological progression taking place:
1. Digitization. This refers to the notion that basically everything that can be computerized will be. Think of robo-advisors, which are automating the allocation of investments and rebalancing of portfolios.
2. Deception. Most people in financial services are not too concerned about robo-advisors as they only serve a small fraction of the market. However, what you need to know is that some robo-advisor firms in the U.S., such as Personal Capital, are growing at a rate of 200% – 300% a year.
3. Disruption. This can be best described as any innovation that creates a new market or disrupts an existing one. Although robo-advisors are not a threat to advisors right now, if usage of these services keeps growing at the current exponential rate, then they will definitely disrupt human financial advice.
4. Dematerialization. This refers to the vanishing of the physical goods and services themselves. Think of how your smartphone has eliminated the need for a separate camera, flashlight or map. Will human advisors be dematerialized?
5. Demonetization. This denotes the removal of money from the product or service. Great examples of this are Skype making long distance calling free or Craiglist making classified advertising free. In financial services, robo-advisors are demonetizing financial advice to the point at which, in some markets, the cost of investment management is down to a scant 25 basis points.
6. Democratization. This is when technology allows an idea to grow into a profitable venture without large-scale investment. This is a more positive trend for financial planners and advisors in that with the proper utilization of technology they can compete with the bigger financial advice firms.
So, how can financial planners and advisors survive if financial advice will be demonetized to almost zero? According to Charles Darwin, "It is not the strongest or the most intelligent who will survive, but those who can best manage change." Thus, for advisors, there are two complementary options to transform and change as to how you serve a client in the future.
The first is to embrace technology to create scale and efficiency and intertwine the best of digital technology with human advice. You should invest in account aggregation technology that allows you and your clients a full view of their assets at a glance. You should also have onboarding technology that allows you to better setup new customers and manage all client accounts. Furthermore, your clients want flexible access to you and their information 24/7 via their smartphones. You should also offer video conferencing via Skype or other online video conferencing services. Most important, client information needs to be presented in a visually appealing and understandable way. The objective of using technology is to serve more clients at a lower fee while enhancing the client experience.
The second option is to redefine your value proposition by expanding financial planning into life planning and ramping up your level of advice to clients, who are living longer, have multiple careers, multiple relationships and health needs. Financial planners and advisors who can extend their services beyond helping their clients reach their financial goals into helping them reach their life goals will survive better. Moreover, if the cost of advice is dropping, then how can you add value beyond this new cost level? Building a relationship based on trust and hand-holding during turbulent times cannot be made obsolete by technology and, specifically, robo-advisors.
The fintech revolution demands transparency. Clients can easily see the pricing, services and time investment required by them on these new competitive technology service websites. Therefore, financial planners and advisors need to be clear on their pricing and what they can provide for the client's time investment.
Financial advice is clearly being demonetized. The future will determine if it will be zero or not. Financial planners and advisors who begin embracing technology to lower their cost base and enhance and extend the client experience will be the new human financial and human advisors of tomorrow.