FinTech

Using FinTech to Make Financial Advisors Better

April 18, 2013 by JP Nicols

Wealth management firms are increasingly turning to financial technology (FinTech) to enhance the client/advisor relationship, not just deliver self-service tools. It’s about time. That very subject is a prominent theme on this blog, and it comprises a lot of the work I do for financial services and FinTech firms.

Ernst & Young’s recent report Enhancing the Advisor and Customer Experience Through Technology cited three core themes that emerged from their survey of wealth management executive:

Leverage technology to provide better experience for clients and advisors
Focus on advisor effectiveness and mobile technology
Maximize ROI through technology sourcing and IT organization models
Continue to balance technology spend with compliance and regulatory requirements.

The survey found that 75% of wealth management firms surveyed have plans to increase client-facing time, and an equal share of firms plan to invest in mobile tools to improve advisor collaboration and effectiveness.

Will FinTech Replace Financial Advisors?

An article on the study on the Financial Planning website quoted E&Y principal Marcelo Fava as describing the rapid growth of self serve tools as a greater threat to mass market advisors than to advisors of wealthier clients;

“The low cost and effectiveness of that model is appealing, but as your move up in net worth and complexity it’s less so. Households that need tax effective financial strategies will still be willing to pay for the skills of personal advice.”

– Marcel Fava, Head of E&Y’s Americas Wealth Management

(Read the entire Financial Planning article here: Ernst & Young: Face-Time a Priority for Financial Advisors)

In general, I tend to agree, although I will continue to watch the growth of newer entrants focused on disruptively cheaper alternatives. I don’t see FinTech replacing financial advisors for affluent clients any time soon, but I do see it is both a an opportunity and a threat. Remember the Innovator’s Dilemma anyone?

I also continue to see clients gravitating towards more omni-channel solutions, where clients can choose self-serve, advisor-assisted and advisor-driven options when and how they see fit, on any technology platform or face-to-face. We are not even in the first few pitches of the first inning on this, but it promises to be an exciting game.

(See Clients Do Not Want Help. Until They Do)

Reimagining Bank Product Design in the Experience Economy

February 21, 2013 by JP Nicols

When B. Joseph Pine II and James Gilmore wrote a book called “The Experience Economy,” they built on the work of Alvin Toffler (“Future Shock”) and others on the value of creating experiences. They cited Disney, Starbucks, Nordstrom and other leading brands as examples. Pine and Gilmore argue– and I agree– that our economy has been evolving, and continues to evolve.

We started as an agrarian society, and we extracted raw materials from the earth. Then we eventually began to make products from the materials we extracted, and we further evolved into delivering services. We still do all of those things, but they are all becoming increasingly commoditized. Think about banking products and services. How do you differentiate your brand from your many competitors? Interest rates? Fees? Product features?

Being able to stage memorable experiences, large or small, elevates your brand to a level far beyond the commodity discussions of features and price. Staging experiences allow you to connect with people emotionally, and surprising numbers of people decide with emotion and justify with fact—including the affluent. (How many of us can say we truly need to spend $6 for a cup of coffee, let alone a $2,700 espresso machine for our kitchen?)

Ultimately, being able to guide customers through a transformation is the highest evolution, and financial services companies are uniquely positioned to be able to do that. (Figure 1)

Winning with Affluent Clients

A KPMG study in June 2012 revealed that 9 out of 10 banks were considering a major overhaul of their strategy, and 40% said that wealth management would be an important part of that strategy. And for good reason— affluent clients hold higher balances, are better credit risks and use more fee-based services. But competition is fierce, and it is difficult to grab the attention of this busy demographic.

(See: 9 out of 10 Banks are Mulling an Overhaul of their Operating Models)

How do you become the bank your affluent clients can’t live without? There is no shortage of financial providers willing to help clients borrow, save, manage and move money. How can you add value beyond these utilities?

This may seem like a bit of a stretch for product managers typically steeped in competitive rate shops and price elasticity curves, but winning affluent clients in this new era requires some broader thinking about ‘products’ and about value propositions.

What business are banks in?

As I wrote in a recent American Banker article: Anyone who has taken even the most basic business course in the past fifty years is undoubtedly familiar with Theodore Levitt’s 1960 treatise “Marketing Myopia”:

“The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented.”

So what business are banks in if they are not in the banking business? They are in the business of helping people achieve their financial and life goals, and the best brands differentiate themselves by reimagining the definition of ‘product’ beyond a typical set of tangible attributes.

For bankers, it is about moving beyond the rate and fee discussion and de-commoditizing the service offering. It is also about thinking more broadly about how to deliver value to clients, on their terms. Affluent clients have the financial assets to achieve their goals, but they are very often time-poor, and the wealthier they are, the more willing they are to trade dollars for time (and experiences).

I recently collaborated with Ten Group USA, the U.S. arm of London-based Ten Group, one of the world’s leading lifestyle management and concierge services companies to explore some ways financial institutions can deliver compelling clients experiences that might be outside of financial firms’ core capabilities.

In future posts I will discuss other ways savvy firms are innovating well beyond the typical rate/fee/feature conversation.

Technology in Wealth Management: Opportunity or Threat?

January 24, 2013 by JP Nicols

(This is an excerpt from an article I wrote for the William Mills Agency’s 2013 Bankers as Buyers report. Click here to download the entire article, plus 40 more pages of “research, observations and articles about what technology solutions and services U.S. bankers will buy in 2013 and the changing financial industry landscape.”)

**Technology Challenges in Wealth Management**

Technology companies like to describe their role in a ‘value stack’ for clients. In banking, the value stack is comprised of three primary sets of activities undertaken for the benefit of their customers. The first set is balance sheet activities—gathering deposits and making loans. The second set is payment activities—moving dollars and data from point A to point B. The last set is advisory activities—providing expertise and advice. Most bank departments can provide some combination of all three activities, but wealth management is primarily about deploying intellectual capital to help clients grow, protect and transfer their wealth effectively and efficiently.

Technology has generally been more of a threat than an opportunity to the wealth management business over the past twenty years, as financial information became more easily accessible and online brokers democratized trading platforms. Firms that made money simply by being gatekeepers of asymmetrical information evolved or died.

Self-Service Alone is Not Enough

Most financial firms have tended to allocate their tech spending to two extremes; either for enterprise needs to meet compliance mandates or improve internal operations (ERP, CRM, core systems, trading platforms, etc.) or to enable self-service for their customers (ATMs, online banking and brokerage, mobile banking, etc.)

Survey results fluctuate during different economic environments, but over the long run, roughly a quarter of clients prefer self-service in managing their money. A slightly smaller group wants to pay someone else to do just about everything, but most clients fall somewhere in the middle. They don’t want to pay excessive fees for services they don’t want or use, but they want advice when they want it, usually related to a change in circumstances, such as an inheritance or a major life change.

In other words, self-service alone is not enough, and firms will need to invest in technologies that can scale profitable advice delivery.

**Technology Opportunities in Wealth Management**

Financial institutions of all sizes want to improve their business with affluent and high net worth customers, and technology can definitely help banks address these challenges, but the payoff can be elusive, as I’ve written about before in the Clientific blog. Merely implementing a piece of technology without the context of delivering true value to clients will typically become an expensively disappointing project. The gap between high expectations and the longer growth curve of real value often leads to the ‘hype cycle’ that Gartner describes so well, (and which I have also previously described in a broader wealth management context). The gravity of reality will inevitably pull banks down from the Peak of Inflated Expectations and into the Trough of Disillusionment.

Download the report to read the entire article…

P.S. – The consulting firm Oliver Wyman has recently reached similar conclusions in a new report that is worth reading: A Money and Information Business: The State of the Financial Services Industry 2013

This year’s State of Financial Services examines the industry’s greatest opportunity, and its greatest threat: information…

You may be reading this paper on a tablet. You would not have read our 2008 report that way. You may use your smartphone for travel directions, reading the news, getting stock quotes, making bookings and listening to music. You didn’t five years ago. You may connect with your friends on Facebook or watch movies on your laptop, streamed from the internet. Again, you probably didn’t do those things five years ago.

Yet, if you are a banker or an insurer, your work life has probably been little affected by the rapid growth of information. How do you now set prices, underwrite loans or policies, assess performance, segment customers and measure their satisfaction? Chances are your practices are much as they were in 2008 (or perhaps even 1998 or 1988). (Emphasis mine)

Source: Oliver Wyman http://www.oliverwyman.com/state-of-financial-services-2013.htm#.UQAWlKUZGB8

(P.P.S. – And if one of your new year’s resolutions was to fill up your digital reading list, head over to the Clientific site to download a free 28 page special report: Five Shifts that Define the Future of Wealth Management.)

Improving Client Engagement with Technology

October 18, 2012 by JP Nicols

Readers of this blog know that my primary focus is the convergence of high-tech and high-touch that I believe IS the future of wealth management. I think Balance Financial gets this better than most fintech firms, and that is why I am proud to serve on their Advisory Board. Read on…

Wealthfront rolls out yet another tool for the newly Valley rich

October 15, 2012 by JP Nicols

Another interesting example of disruption in the wealth management business.

The Convergence of High Tech and High Touch in Wealth Management (jpnicols.com)

Demystifying Social Media: It’s All About Business Strategy

September 28, 2012 by JP Nicols

(I originally wrote this as a guest post for the management consulting and strategic communications firm Beyond the Arc. You should check them out for a lot of great information on customer experience, strategy, analytics and social business. I will be speaking on a panel on How to Monetize Social Media with their CEO Steve Ramirez, along with Citibank’s Frank Eliason, cited below, at the BAI Retail Delivery Conference on October 9.)

I am sometimes asked to give social media advice to others in financial services.

“I wouldn’t necessarily consider myself a social media expert,” I once told a counsel-seeker.

“You’re a banker with a blog”, he shrugged, “the bar’s pretty low.”

Well, ex-banker now. I now run my own consulting business for financial advisors and firms, and many of them have questions about social media strategy. I often start by quoting Ron Shevlin, Aite Research analyst and Snarketing 2.0 blogger:

“There is no such thing as social media strategy. There is only business strategy.”

— Ron Shevlin

It is not uncommon for business managers to seek the holy grail, the silver bullet that when deployed, will magically transport their business to new heights. In the late 1990s, it was the internet. Lousy businesses added “dot-com” to the end of their name, changed their logo to purple and green, and threw up a website. They were still lousy businesses, and the internet didn’t change that. In some cases, it may have even accelerated their demise.

Social media is just a tool to use in running your business. There is nothing magical, or necessarily even compelling about it. Lots of very successful businesses have small or nonexistent social media presence. Frank Eliason, Global Head of Social Media for Citibank, and author of the book @Your Service: How to Attract New Customers, Increase Sales, and Grow Your Business Using Simple Customer Service Techniques, cites Apple as an example of a well-run, much-admired company that does not focus much on social media. Retired athlete Michael Jordan’s page has nearly triple the number of “likes” of Apple’s page, and dead musician Michael Jackson has nearly seven times as many.

Transparency: Good News and Bad News

Participating in social media increases the transparency of a company’s operations and people, which is a positive thing for most customers. The bad news is that poor practices and behaviors are highlighted as well. If you have a dumb policy or poorly trained people or a bad product, that will become readily apparent even sooner through social media. Maritz Research found that 51% of consumers who complain via social media expect to be contacted, but that 85% of those outcries are not addressed at all.

I sometimes air complaints and compliments via Twitter, partially as a social experiment. The range of results is stunning. I had a sleepless night in a Westin hotel due to a loud banging noise caused by a problem with air in their pipes. I tweeted my frustration and was contacted within hours by both the hotel management and their Starwood Preferred Guest loyalty program, and each offered me apologies and compensation for my inconvenience. My frustration was quelled and I remain a loyal SPG guest.

Quite the opposite experience I had with a major retailer. I was not having any luck reaching someone on their 800 number with the authority to reverse an express shipping charge to correct their own mistake, so I tagged them on Twitter. The next day I received a tweet apologizing and asking me to call in with a “reference number”, but when I called in, I was right back at the low level where I had begun. The “reference number” was meaningless and no one on the phone had any more information or any more authority than on my original call. I try to shop elsewhere.

What is Your Business Strategy?

What are today’s key business challenges and how can social media help?

Acquiring new customers

How can you use social media to differentiate in a crowded business and gain market share over the competition?

Monitor social networks for disgruntled customers of competitors. Respond better than their own providers.

Run targeted ads to reach your ideal customers efficiently.

Demonstrate your expertise and thought leadership through blog posts, white papers, case studies, etc. Not only does this showcase your unique value, it helps prequalify prospects searching for specific solutions.

Be there when prospects are looking for the services you provide. The CEO of a major social network tweeted that he was trying to reach someone from my last bank about a mortgage. We were just starting to monitor Twitter and our social media team sent the message to me, so I responded on his terms– on Twitter.

Retaining existing customers

Half of bank customers are considered “ripe for change”, and most change because of changing life circumstances.

Monitor social networks for disgruntled customers of your own firm. A problem solved promptly and well can create more loyalty than a customer who experiences no problem at all.

Make your customers aware of current relevant offers or promotions. Providing offers only to acquire new customers is a turn-off to your existing customers.

Provide multiple channels for sales, inquiries, questions, and problem resolution.

Make sure you are providing your customers a way to engage in two-way (or multi-way) conversations. Social media is not just a soapbox from which to hawk your wares.

Expanding relationships with existing customers

In the consumer banking business, as many as 80% of customer relationships are unprofitable. Those statistics may not be accurate in your industry, but some variation on the Pareto Principle (the “80/20 rule”) tends to exist in every business– a small number of customers typically provides profitability to subsidize the vast majority.

Make more of your relationships profitable with relevant offers for additional or complementary products.

Incorporate social data into propensity-to-buy models using predictive analytics.

Pay attention to changes in life circumstances that may call for additional services. (Weddings, babies, moving, etc.).

Leverage your platform for mass customization.

The View from the Bridge

No matter what business you’re in, it’s likely you are dealing with these basic issues. A social media presence won’t make them go away, and poor social media practices will make them worse. Focus your business strategy on solving relevant customer problems, and leverage social media as an enabler. There are plenty of social media experts who can design just the right digital campaign to reach just the right markets with just the right messages –but first, ask yourself a key question (and one that we have discussed here before): Are you repainting the walls, when you have a serious crack in the foundation?