In the Blogosphere, April 11, 2022
Every day it seems like dozens of news items extol the virtues of new fintech – product announcements, funding efforts, PE acquisitions. A dizzying array of tools floods the advisor market. I am envious of those who can choose wisely among them. The @Kitces chart of company logos – brilliant. I wonder how many of these companies will survive. Does the world really need 26 portfolio management systems?
I don’t want to discourage innovation—bring it on! But do we truly learn how to use the amazing apps and software we already have, or do we jump on emerging fintech as if it were the new iPhone version X.X before we’ve figured out half the functionality of the old models? Do we have a product innovation challenge – or an adoption challenge? My guess is that adoption is the new innovation.
Chasing the Other 80%
Simple questions of even the best advisors reveal opportunities. Ask advisors if they deliver a list of ten wealth management services to their clients and the answer is invariably “yes”. But then ask how many of the (average) 100 households have actually received all ten services from their practice and the response is different. Serious truncation takes place after households #10-20 to prove Pareto alive and well.
The practical reality is that today’s advisors can do very well with that 20% of engaged clients. A robust bull market tide since March 2009 has lifted most all the advisory boats while reducing incentives for “completeness”. The industry is not so much focused on making sure everyone is cared for – the focus is more on satisfying the financial objectives of the industry. This delivery gap is a wide open door for serious competition – a door being accessed now by ambitious scale players eyeing the prize.
Invention vs. Innovation
My view of “innovation” has been formed by years of watching the energy of brilliant minds pursue a new capability without first testing for effectiveness – or impact. Seemingly small steps applied at large scale can easily outweigh unique inventions. Consider the time savings and customer satisfaction of improved money movement – remote check deposit, the ability to send wires – vs. the more limited but more exciting investment product builds.
Simplicity, ease and control are powerful design elements the advice industry has room to exploit. As long as CRM use remains below 50% of active advisors and fax machines support any part of FinServ, we have work to do.
Path Forward: Divide and Conquer
The advice industry is maturing into a more organized product and delivery phase. We know that many consumers need help with retirement advice, they want information about healthcare solutions, protected income and liquidity. We know that too few advisors provide that array of essential services – and that the industry does not strive to get those services to all of the clients.
Some firms are stepping into the “80%” gap by providing advisors with ideas for “next best actions”. Others are beginning to mimic the direct marketing behemoths Fidelity, Vanguard by making offers to clients and encouraging them to then engage an advisor for follow up. Still other efforts will allow clients to take action without need of an advisor. This segmentation is the future.
Our economy long ago eclipsed the need to depend on humans for delivery and effectiveness of most services and products. Even personal health care today has filled in huge gaps with transparent reporting, electronic records and partnerships with local for-profit chains like CVS. Amazon removed the need to depend on the local store. Gaps in delivery will be filled by innovators not focused on inventing some super silver bullet but instead focused on how to get us what we think we want when someone else cannot.
Disruption Is Invited
Several brilliant innovators have declared their best works were not even imagined by the consumers that love them. True enough. But some of the greatest commercial successes have been created by providing access – simpler and easier – to capabilities or products consumers asked for and could not get. And while it is fashionable to have a new invention, it is more powerful to be effective.
Focus on Effectiveness and Client Success
The much hyped “customer experience” needs an upgrade to “customer success”. Firms and advisors already on this bandwagon are the leaders. The myriad challenges of retirement planning require real answers, not best efforts. This standard of success is growing fast and will soon reward providers who can meet expectations.
A second and equally important aspect to “success” is the shifting of roles among providers. An advisor focused on investments that tries to add healthcare and longevity planning is taking on a significant effort. Creating successful retirements will mean transitioning to a new definition of success – a retirement manager or “next chapter” facilitator. Just like the industry move made years ago in favor of professionally managed accounts, the true consultants emerged and flourished. The true “stockbrokers” withered from the competition.
There is new opportunity for advisors and service providers to each take on components of “client success” and work together in complementary service models. Delivery needs to focus more on completeness and less on satisfying the requirements of a select few clients. Digital capabilities leverage the effectiveness of humans, and can also help reach people who need help. As we learned with COVID 19, there is both a need for effective treatments but also the access to those treatments. Innovation looms large in both perspectives.
Steve Gresham is on a mission to improve “retirement.” He is CEO of consulting firm the Execution Project LLC and leads Next Chapter, an active think tank of 50-plus leading financial companies. He is also the senior educational advisor to the Alliance for Lifetime Income. Join Steve at Next Chapter 2022: Rockin’ Retirement on May 24-25!