An industry not open to disruption is an industry that is not going to last very long. The whole basis of capitalism is to develop an industry, disrupt and redevelop it, and then repeat the entire process again and again. Static and stagnant die; disruptive and fresh succeed along with continual evolution. Knowing that, the financial service sector had better get ready. Financial advice is about to be disrupted in three big ways.
Just like Uber and Lyft disrupted the livery industry, the whole way financial advice is given is about to change big time. Those advisers and broker-dealers able to successfully adapt to the changes will do fine, according to Western International Securities. Those unable to adapt will either sell or fail.
The Dreaded Fiduciary Rule
Pending an about-face in Washington, it is all but certain that the Department of Labor fiduciary rule we’ve all been anticipating will be implemented in short order. Even if it is repealed though, the groundwork has already been laid to find a way to ensure that financial advisors are putting the best interests of their clients first. The fiduciary rule is the biggest disruption of the financial advisor-client relationship we have seen in a long time.
Under the rule, financial advisors will not be able to focus solely on their own commission when advising clients. Indeed, they will no longer be able to just offer ‘good’ advice. They will be required to offer the best possible advice even if that means less income for themselves. The implications of how disruptive this is to financial advice are hard to quantify. It is completely upending to an industry that has never done things this way.
Big Data and Analytics
Though big data has been around for decades, it is just beginning to become a major influence in investing and financial advice. The biggest broker-dealers have brought big data professionals on board to find ways to collect data and apply proper analytics to make it profitable. And it’s working.
Over the last few years, the industry has discovered just how valuable big data and analytics are. When a broker-dealer knows what kind of data to collect, how to analyze it, and how to turn the results into actionable advice, great things happen. Advisors are going to have to get on board with big data and analytics if they hope to succeed in the future.
Self-Help and Artificial Intelligence
The introduction of self-help platforms powered by artificial intelligence could be the most dramatic disruption to the financial services sector over the course of the next 10 years. We are already seeing the emergence of self-help investing platforms that automate investing by tracking market opportunities, automatically moving client funds around in response.
A number of broker-dealers have also begun rolling out automated financial advice platforms. Such platforms are a bit more difficult to get right because they offer advice rather than automating investment decisions, thus they rely more on artificial intelligence. But the leaps and bounds we are now seeing in artificial intelligence are quickly erasing the boundaries. We are rapidly approaching the day when artificial intelligence and online technology will make it possible for the average investor to do very well on his or her own, at least with things like stocks and bonds.
The financial services sector is about to be disrupted in three very big ways. The good news for financial advisors is that these disruptions do not mean the end of human advice. They just mean a change in the way advice is offered. Those able to adapt will be just fine.