07 March, 2017

The coming tech-tonic shift in financial services space!

Technology is an enabler. Tech is used to make things easier, ensure good quality at low cost, remove mind-numbing repetitive jobs and act as an aid to mainline functions like Sales, Finances, Manufacturing etc.
The role of tech has slowly changed. From being an ancillary function, they have started occupying centrestage – across industries. In many new age businesses, technology is the heart itself.
Technology as a disrupter - Seismic shifts are happening across industries & is going to make a whole lot of people & current processes redundant.  Technology also will create many new jobs – but many of these jobs will be highly skilled jobs, which has a high entry barrier.
Whoever thought an app can disrupt taxis/ autos!  Drivers stare at the prospect of losing their livelihood as more and more people choose to travel using Ola/Uber. People may not feel the need for cars at all in future – at the least, multiple cars will go away if a car is just a click away, any time of the day or night.
Driverless cars are another trend that may mainstream, maybe in the next 5 years. This has huge implications not just for drivers but for car manufacturers as well.
If driverless cars and carhire services are the future, then the number of cars sold could plummet. The way taxi aggregators operate itself will change. There will be, say, 200 depots throughout the city & the driverless cars will pick/drop a passenger nearest the depot & return to the nearest depot, till it is hired again! This way the number of cars required to service the car using population could probably come down by a factor of 10 – that could be a worry for the auto companies.
Again tech is disrupting a lot of other areas. Eat out/ Restaurants industry, for instance, have both been benefitted & buffeted by technology. The reach of restaurants in an area has increased due to apps, but many times, they are also forced to lower their rates.  Now, the traditional restaurants are facing stiff competition from two new sources – purely online delivery services & home cooks.
Online delivery services may be aggregators or actual service providers. Aggregators would assist existing restaurants to expand their footprint.  Purely online delivery services are the new kid on the block, which is today posing a threat to the traditional restaurants all over a city or atleast vast swathes of the city. They have the advantage of having their kitchen & operations in parts of the city, where rental costs are low. Unlike the restaurants, they need not setup an eatery in a prominent place, need not do up the place, spending a fortune.
The other competitor is Home Cooks! Now we can all get home cooked food instead of ordering from hotels. In Paris, it has gone one step ahead… Chefs are inviting people to their homes with the prospect of a six course meal with their family, at about one-fourth the price of such a meal in a fine-dine restaurant!
Disruption is hence everywhere. A mobile phone is all we need today. We can call, click photos, chat, search, purchase, pay bills, check mails… the list is endless. Purchases & payments are increasingly migrating to mobiles. In future, we will use our mobiles for everything else as well – from switching on the TV, checking what is happening at home sitting at office, dimming the lights or starting the washing machine an hour before one gets back home etc. This comes under the head of Internet of Things.
The coming tsunami in Financial Services - While there is so much disruption everywhere, is financial services immune from it?
No way! The disruption in financial services has just started… we have seen nothing yet!
The Robo Advisory  platforms of today are rudimentary. Today, they are asking a few questions & are suggesting a portfolio for the investor. There are others which go a bit further, gather a bit more data, do risk profiling & draw-up  a basic financial plan as well. This has led to the financial services community to derisively dismiss Robos, almost concluding that they will never be able to replace human advisors.
Machine learning, deep learning & artificial intelligence are progressing rapidly. Deep Blue, a software program by IBM, has beaten the best chess players in the world, over two decades ago. Deep Stack of Bowling’s lab, University of Alberta, has won against the best players in Poker, in the no-limits-on-bets version, very recently. This is a huge achievement as Poker is a game with lots of uncertainties & lack of information about others’ “hands”. This program can run off a gaming laptop – not a super computer! This kind of programming would have potential application across areas - from defence to medical sciences.
If such is the capability of AI, why do we think computer programs would not be able to advice competently?  Advisors would be deluding themselves if they think they are indispensible.
Yet, in conference after conference, I hear “comforting words” which imply that advisors cannot be replaced as they offer counsel , are the client’s trusted  confidante, assist them navigate turbulent waters & help them keep their cool. The “psychological counseling & hand holding” portion is being over emphasized. 
AI is advancing rapidly & soon can interpret emotions based on pupil dilation, breathing rate, flushing of the face etc. & offer expert counsel, the likes of which we will find hard to compete!
Financial Advisors need to work much harder  - Does all this then mean the death knell for advisors?
Not necessarily. Robos would attract a huge following by offering advice that is accessible to the population at large, at a small fee, be able to service a very large target audience consistently & by driving the cost to the customer down even on products suggested. As an example, Vanguard has USD 4 trillion in assets & charges an average of about 0.18%!
But, still the advisors will be there. However,  what advisors will be able to earn may come down dramatically, as the new-age Robos become mainstream, acquire human like capabilities & drive costs down – in terms of fee charged for advice, commissions from products & portfolio management fees.  
However, most in financial services field are in denial. They don’t think people will go Direct, don’t think ETFs will mainstream, don’t think robos can advise clients competently…  the  truth is that financial services landscape is going to undergo a sea change & everyone will be touched. The product distribution & advice is going to be commoditized like never before.
Product manufacturers would need to change as well - they have to respond with low cost/ high volume products & an online friendly ecosystem to suit the needs of the online advisory.
There is one thing going for the advisors. People prefer dealing with real people, instead of interacting with a computer program, however good & prescient the computer algorithm. Hence, if the advisor offers a good value proposition, they will continue to be in business.
Advisors also have to move up to the ground that Robos may not be interested in or may not be able to compete easily. There are many areas where advisors can deliver significant value to a client – life planning , major transition assistance, financial therapy, estate planning , philanthropic planning, life coach, coaching the next generation for wealth transition etc.  Advisors can well thrive if they manage this transition well and use Robos for the basics & focus on these high touch, high value areas.
Conclusion – The coming tidal wave is real. It will swamp the financial services space, as the current business model will no longer work. The high earnings on commissions & fees would go away. Financial products / services will be largely commoditized.  Advisors need to recognize these and use technology to drive down their costs of servicing customers and at the same time moving to high value areas that would add significant value to customers. Those willing to transform are the ones who will survive & thrive.  We hope that number is significant.
Article first appeared on Linkedin: The coming tech-tonic shift in financial services space!

Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7

No comments: