The way consumers interact with service providers—whether retail, health care or banking—has profoundly changed from just five years ago. Even in heavily regulated industries like financial services, digital disrupters have drastically altered the status quo, forcing companies to rethink traditional business models in light of new digital entrants and shifting client expectations. From robo advisors to new regulations, millennials to baby boomers, new developments are making clear that the ways of the past are no longer the keys to success in the future—or even today.
The urgent necessity of firms and their employees to adapt to the changing expectations of today’s always-connected consumer was a key theme at Hearsay Social’s recent Innovation Summit in San Francisco, which focused on the transformative changes taking place within the financial services and insurance sector, as well as the challenges and opportunities that lie ahead.
To stay relevant and succeed in the face of such profound changes, here are five things to keep in mind:
1. Financial technology is an evolution, not a revolution.
The phenomenon that is happening in financial services is an evolution, rather than a revolution, according to Naureen Hassan, the chief digital officer at Morgan Stanley, in her opening remarks on the future of wealth management. Amazon and Google have set the bar for what consumers now expect and demand. These new consumer expectations do not mean that traditional wealth management firms have to completely change course, but they need to evolve.
Consumer trends that started in retail are now clearly affecting regulated industries like financial services. For example, mobile now accounts for 21 percent of all transactions at Starbucks. Allowing customers to order via mobile before picking up their drink moves people through lines more quickly, but still allows for personalized customer experiences. Consumers expect to have access to certain information and activities through their phones, but that doesn’t mean that human interaction is going away. Leading financial firms are exploring similar practices and next-gen tools, and may look to retail leaders like Starbucks for ways to enhance customer experiences.
2. Skate where the puck is going.
This should come as no surprise, but following the money is always a good strategy. There is a lot of buzz in the industry about robo advisors and digital-direct financial products, but those channels only capture a small portion of invested assets. The 10 leading financial advisor channel firms still tout more than $13 trillion assets under management, compared to $250 billion for robo advisors. Focusing on capturing the generational transfer of wealth is a much bigger opportunity. As Chip Roame of Tiburon Strategic Advisors points out, baby boomers, who still hold the majority of America’s wealth, will liquidate some portion of the $59.4 trillion in retirement plans, personal assets and small businesses they currently control. A significant portion of this money will go to the current millennial generation, and getting in touch with them now is essential.
3. Know your next generation of clients.
Financial planners and advisors looking to reach this next group of investors need to know that millennials have already taken the mantle as the largest portion of the American population, and just last year became the biggest part of the American workforce. This is quickly creating a lot of new client opportunities, but firms will need a refined understanding of how to meet the unique needs of this growing demographic, as my co-founder and CEO of Hearsay Social Clara Shih has shared.
Moreover, what financial professionals may not know is that despite their digital dispositions, most millennials still crave face-to-face interaction with an advisor, just like their parents before them. However, millennials also expect those advisors to be digitally savvy. Having a strong online presence and communicating through a variety of digital channels is imperative. Digital technology is not just a disrupter, but also an enabler, opening doors for advisors to have the same human interactions with a younger generation.
4. Digital technology is not turn-key.
Simply opening new digital channels of communication for customers is not enough. You have to put in the effort to actually engage with customers where they want to interact. Kenneth Lin, founder and CEO at Credit Karma, demonstrated how his company conducts all customer interactions online, with no cold calls and no physical touchpoints. While this may not be the right approach for other financial services professionals, it certainly shows that communication will often originate online.
Today, customers expect to find and hear from you exactly when, where and how they prefer: on social media and mobile devices. Millennials are even more likely to share their experiences on social media. As a result, firms that fail to provide desired communication channels for their advisors to reach their clients—like text messaging—puts firms and advisors at risk of being left behind. Amitabh Jhawar, COO of Braintree, said his company uses social media data to inform risk modeling.
5. Financial services are being unbundled.
The primary driver of disruption in financial services is deconstruction of the one-size-fits-all product, according to Jon Sakoda, general partner at venture capital firm New Enterprise Associates. This unbundling allows new entrants to disrupt large incumbent firms by offering specialized, niche services at scale. To compete, traditional financial organizations must offer faster, more efficient services while playing to their “human” strengths. High tech but also high touch is how to win in today’s marketplace.
The undoubted winner in the digital evolution of financial services is the consumer, who will have a wider array of options at cheaper prices. If there are any losers, it will be those who fail to put forth the effort to arm themselves with digital technology to meet the needs of the always connected consumer.
Steve Garrity is COO and founder of Hearsay Social.