That time of year again, where in this part of the world
(Sydney), most people are heading back to work after a solid break. I find that
each year after such a break, the thinking in the industry advances
considerably as people have had time to clear their heads and absorb what has
being going on around them last year. This often leads to new energies and
directions, and this year I am already experiencing no different.
You may have been also reading about what many in Davos have
been calling the ‘4th industrial revolution’ which others have
called the ‘digital revolution’, and I suspect there are a number of other
names also for it. My key observation is that this ‘revolution’ is about the
highly connected society that we now live in, where the power of the highly
connected consumer (through smart phones primarily today) is having amazing
effects on industries, businesses, society and individuals. Wealth management
is no different and many in the industry are realizing that there is perhaps
some profound trends and changes that are upon us, and this is driving the new
energies for 2016.
Whilst sheer power of communication between individuals and
businesses has clearly been evident in the use of smart phones, what is now
being realised that this doesn’t just mean we communicate like we did before
must more efficiently, but there is now new ways to communicate that mean that
some communications of old are now redundant, and other types of communication
are becoming more relevant. In wealth management, this is stuff like not just
understanding valuation of portfolios with associated research, but introducing
consensus on investments and sectors, dynamics of the markets with new metrics,
and even ‘social’ overlays associated with companies etc. This also applies to what regulators are expecting to be reported to them.
We are also however seeing that some of the conflicts and
shortfalls of the prior industry model as it has developed becoming increasingly
exposed and industry participants finding themselves under increased scrutiny
both from their clients who are demanding more information, but also the
regulators, who are having to respond to the increased amount of data and
information appropriately, which is in many cases creating new regulations,
codes of conduct or even laws. I suspect in 2016 that will see this accelerate
and like in many industries or other parts of life, that the ‘social regulator’
may in many cases have more of an impact than the one that comes through the
door.
Back to people coming back from their Christmas breaks….well
we are already number of enquiries around ‘how do I deliver to my clients
better ?’, ‘how can I stop using product based platforms ?’, ‘how can I put in
a model that allows me to scale the business easier than hiring people ?’. Well
a lot of this happened last year, so what is different this year ? This year
the difference is firms are recognising that rather than looking at each of
these issues individually with point solutions, there is clear recognition that
to manage such different initiatives separately, often with different
technologies, is both expensive, and often leads to increased overhead rather
than improved overall business performance. I suspect that is why many are
telling me that so many wealth management firms around the world last year were
struggling to improve profits, or in many cases even make a profit. The new
year realization for 2016 that people are coming to is that just ‘putting more lipstick
on the pig’ is not a recipe for success and that a more integrated coordinated
approach, requiring broad enterprise review and modeling is required.
In the UK
we saw a number of mergers of wealth management firms that I suspect will get
efficiencies of scale in delivering the model with less duplicated overhead,
but the question I ask is whether that is just short term fixing but avoiding
the real issue of that a new engagement model is required in the digital
revolution.
I still think we are at the start of this ‘digital revolution’ and some
rules of thumb that I think will emerge from such are:
-
Be very clear on your value proposition to your
client
-
Be very clear that your clients understand the
value (to them) of everything that is put in front of them
-
Expect regulators to start wanting to look at
more ‘data’, and ask for more definition of what your business is doing to add
value to such data
-
Take it for granted that you cannot hide from
the social regulator, and ensure practices and conduct reflect such
-
Often your uniqueness is your value
-
If you are in a value chain, expect your
suppliers and partners to ‘pirate’ the value chain, ie move around you
-
Expect new forms of digital communications to be
requested by, and valued by, your clients
Thankfully at Financial Simplicity, we have been helping wealth and investment management
firms with much of this for some time, preparing them to survive and thrive in
the digital revolution. If you are wondering what the digital revolution may
mean for you or your firm, drop me a line. Its more than a web page.
