Journal of Financial Planning: January 2017
Anthony Stich is director of global marketing at Advicent Solutions, a leading provider of SaaS technology solutions for the financial services industry, servicing the world’s largest financial institutions.
Predictions in the technology industry are generally futile. Technology is unpredictable, and in the fintech industry, even more so. We experienced a great deal of change in 2016, and should expect further excitement in 2017. But before we get into my predictions, I would like to preface this commentary by pointing out two things: Brexit and president-elect Trump.
In 2016, two events occurred that nearly every pundit and industry analyst said would not. Yet, they did. I won’t get into the politics of these two events, nor will I speculate how these two events happened; I just want readers to consider my predictions in the same light—knowing that predictions are merely educated guesses based on the information provided at the current point in time. One thing remains true about Brexit and Trump: both events will certainly impact the fintech industry in 2017. And now, three things to watch for this year:
Financial Planning Technology Surges in Post-DOL World
Technology will play an important role in complying with the new fiduciary standards set forth by the Department of Labor. In fact, we often joke at the office that Advicent must have lobbied for the rule, as sophisticated financial planning software is best suited to help advisers comply with the rule by offering tools like data gathering, scenario comparisons, progress reporting, and report archiving. These tools help advisers become more transparent with their clients.
Considering all of this, we anticipate a surge in financial planning software adoption. In fact, we are experiencing a great deal of this already, from both customers and prospects alike. Interestingly, we are hearing from more than just financial advisory firms. For instance, we are witnessing financial planning software adoption by insurance distributors. When you think about it, it makes perfect sense. If you or your firm are offering financial products that impact someone’s financial future, it should be done with their best interest at the core of the decision—even if it is an ancillary product such as insurance. Circling back to my prediction: sophisticated financial planning technology will be heavily adopted throughout 2017 in an effort to better comply with the Department of Labor’s Conflict of Interest Final Rule.
The Third Wave Hits the Fintech Space
The Internet is now in its third wave, aptly named the Internet of Things, and we anticipate the expectation surrounding this wave to also hit our profession.
The first wave was when people connected to the Internet via desktop computers. The second wave was when people connected to the Internet via their mobile devices. The third wave—where we find ourselves today—is people connecting to the Internet via other things, like refrigerators. While I do not anticipate your financial plan integrating with your daily milk consumption, I do envision the “connectivity” of fintech expanding.
2017 will be the year of deeper integrations. We will see our profession expecting more ways of intercommunication between various technologies. As technology stacks expand, so will the need for seamless communications between everything. When you think about it, many technologically savvy advisers work with upwards of eight technologies per day: email, portfolio manager, financial planning software, customer relationship manager, risk tolerance software, marketing communication tool, project management tool, and others. Advisers will continue to expect a greater level of connectivity with data moving seamlessly amongst the technology stack. Further, this communication should be instant and, most importantly, valuable.
Think bigger than just internal software stacks. Banks, wealth managers, portfolio managers, data warehouses, core processers—everything will need to become more open. End clients, as well as advisers and their firms, will expect intercommunication to improve. The further development and refinement of application program interfaces (known as APIs) will provide for greater communication.
And with this new level of communication comes a greater need for security. Expect to see cybersecurity and how to manage API communications securely as hot topics in 2017. We are already beginning to see chatter from industry professionals on this subject. You can anticipate more on cybersecurity, as well as how it is managed, in the coming months. So back to my prediction: the Internet of Things will influence how advisers and their clients expect their technologies to interact (refrigerators not included). For more on technology trends, see the cover story beginning on page 20.
A Turn Toward Authenticity
Robo advice was all the rage in 2015 and 2016, with a great deal of both M&A activity as well as many enterprise companies entering into partnerships with them. This will continue early into 2017, but some believe this “bubble” will burst, primarily for two reasons:
Robo advice will become ubiquitous with planning, further driving down the perceived value to the lowest common denominator. As this trend continues to permeate the market, the price will subsequently follow (downward), possibly making robo advice an unappealing, and unprofitable, venture.
Once robo-advice is commoditized and everyone offers it, what is the key differentiator? Why would millennials—the anticipated consumers of digital advice—seek out such a commodity? Regardless of investor type, or age for that matter, buyers still seek out value when considering a product or service. Robo-advice will be held to the same standards.
With these two points considered, I expect a move toward more authentic, self-directed planning technologies to emerge. We are going to see more digital advice channels that are custom to the company (or adviser) offering the advice. The value of these new tools will be in the form of the brand with which the consumer is engaging. This value proposition will be appealing to the future investor. Sure, technology will need to be cutting edge and must be competitive with other digital advice models, however, the key selling point will be the authentic experience that companies offer.
Now, this does not mean smaller firms and RIAs will not be able to compete; quite the opposite in fact. Advisers will have to adopt technologies that offer online digital experiences to prospects—more out-of-the-box tools—but will still win on their unique value propositions. This relates back to my prediction that robo-advice will continue to commoditize and consumers will instead seek out more value-based and authentic digital advice channels.
Although prognostications are not foolproof, the writing is on the wall: technology will continue to excite us, as well as amaze us, in how we deliver advice to our clients.