Exploring the Impact of Digital Disruption in Financial Services
July 24, 2015
From robo-advising to crowd-sourced funding and P2P lending, digital advances are transforming the financial services industry. In fact, today’s consumers increasingly expect their financial firms to offer innovative products, be readily accessible via social media, and deliver a multi-platform experience that measures up. It’s no wonder young financial technology trailblazers are expected to impact over 80% of the traditional firm’s customer base as they democratize finance and provide new investment and advisory solutions.
At this year’s FinanceConnect, digital disruption – particularly in the wealth management sector – was a hot topic. So we’ve decided to dive deeper into the digital footprint of this sub-vertical for the second installment of our FinanceConnect Thought Leadership Blog Series. In our last post we explored how to build trust and humanize your financial services brand. In this post, we highlight actionable insights from FinanceConnect’s diverse group of panelists on the importance of embracing digital and establishing a strong online and technological presence.
Since the 2008 recession, tighter government regulation coupled with disruptive financial technology and changing consumer demands have made it increasingly difficult for large, established firms to rebuild trust and gain a marketable “edge” over upstart competitors. As Bill Sullivan, Head of Global Financial Services Market Intelligence at Capgemini shared with us,
“The challenge is the acceleration of disruption is happening at a faster pace. [Disruptors] are setting expectations higher and they continue to raise the bar day in and day out.”
Now, for those outside the world of finance, preparing for and facing these challenges might just feel like another day at the office – particularly if you are working from Silicon Valley. But for legacy institutions at the mercy of vigorous regulation, it takes a lot of momentum to align the stars of IT, UX and Big Data. Marty Willis, CMO of OppenheimerFunds might have said it best, explaining how “the big firms have less time to adapt and more competitors eating their lunch.”
However, firms will stand a fighting change and find success in the future if they embrace their own digital evolution and invest heavily in innovation – and they should act fast, act now. As a best practice, leading financial services institutions are partnering with and even A/B testing new opportunities for growth and product enhancement, as we’ve seen with AXA Lab , Citi Ventures and the BNY Mellon Innovation Center. Hopefully other banks and investment firms will soon follow.
Remember, “It’s not Man vs. Machine”
Technology is undoubtedly changing the nature of borrowing, lending, paying and investing. But in the wealth management space, financial advisors and large institutions that can provide both cutting-edge products and a top-notch customer experience will see long-term success. Take it from Hardeep Walia, Founder and CEO of Motif Investing, who really brought this theory to life:
“[Traditional firms] are doing some very interesting things to compete with smaller players – it’s like we have entered phase two of the Star Wars Trilogy and not everyone is going to survive…[But], do keep in mind that it’s not man versus machine. Everyone is going to use high-tech across the board. The question is what scenarios do we level high-touch layers on – because it is very hard to replace the human touch.”
Even Morgan Stanley’s Global CMO Mandell Crawley admitted to using a high-tech, high-touch mixture of advisory tools, noting that he himself is a user of Personal Capital – an investment and personal financial data aggregator. Crawley also shared a bit of Morgan Stanley’s longer-term strategy, explaining how the firm plans to charge hard form a digital standpoint by up-leveling their advisors’ toolsets with new investment technologies which will allow them “to think through complexities that go beyond portfolio constructions, stocks, bonds, cash, etc.”
As the example above shows, consumers are becoming noticeably more independent when it comes to their finances. Even when soliciting advice from financial services firms, they don’t necessarily want to talk face to face with an advisor. Clients want to feel special and access a full range of support from their firms – and switch seamlessly between personal and hands-off options.
As Eli Broverman, Co-Founder and CEO of Betterment explained “In some cases, investors want to self serve, but they want to self serve in a different way than they have traditionally self served. They want that advice in a digital format.”
With that in mind, financial services firms would be wise to tap into their data to provide meaningful, timely, valuable advice to clients via both social channels and technological means. In this way, they can ensure both personalized communications and convenient, hassle-free interactions.
Respond, Don’t Retreat
Ultimately, digitization represents a significant change for the industry. But it enables all types of firms to serve clients in a multifaceted way, and in turn differentiate themselves and deepen institutional loyalty among clients. The only wrong approach to navigating digital disruption is to do nothing. Financial services firms that embrace disruption and champion digitization will, ultimately, capitalize most on its advantages – achieving everything from stronger relationships with clients to staying relevant in this new disruptive age.
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