Published in January this year, ‘Achieving Business Results Through Innovation and Disruption’, looking primarily at big data as a topic, found that 40% of leading executives viewed the topic of disruption with much trepidation. This provides a nice window through which to view the financial services industry’s own approach to disruption.
Arguably, the single biggest reason why traditional financial services firms are at risk from disruptive financial firms is that they lack a culture of innovation and view market disruption as a threat, rather than an opportunity.
It’s important to remember that innovation is one of the cornerstones of continued commercial prosperity. The financial sector is no different. Disruption is necessary for prosperity to flourish – this has been no more apparent than in the growth of the platform market.
Consumers demand swift and simple access to information and application. These same demands permeate deeper into the financial sector. The financial sector has many factors which contribute to disruption, with three primary ones springing to mind.
Many financial institutions, including established banks, utilise outdated legacy systems. Most have been in-situ for years, and are archaic. Financial institutions bear the burden of running these outdated legacy systems – not only are they expensive and perform poorly, but they are one reason why the financial services industry is at risk of positive disruption from FinTech firms.
These legacy systems ensure that financial institutions are unable to deliver low-cost, convenient and fully-integrated platform features to customers. Over the last five years, banking systems have evolved, yet they are yet to enable consumers to have a comprehensive, fully-immersive level of service. Legacy systems simply do not have the capabilities to cater to customers’ every demand.
Regulatory Barriers and Reliance
The financial sector is one of, if not, the most heavily regulated industries in the world. Whilst the protection for consumers is obviously welcome, the knock on effect is that regulation has increased cost implications and service workflow procedures. These additional steps can dramatically slow down business processes.
This increased cost also discourages the ambition and prosperity of FinTech firms due to the significant costs of maintaining compliance.
Existing financial institutions have relied on these barriers of entry for generations. However, with new financial platforms coming to market and competing with traditional financial service providers, the financial sector has been forced to re-assess its approach to regulatory stipulations and willingness to innovate, causing disruption.
Perhaps the most significant positive disruption in the financial sector of recent times is the innovation of wrap platforms. The question then forms: where next? With wraps driving disruption within the marketplace, our decisions on what to do in the years ahead will be part of the positive forces of change within the sector.
A big part of that discussion to date has focused on price. There is no doubt that this is part of the conversation. But claiming or pursuing disruption on price alone creates a race to the bottom which benefits no one.
It is far more interesting to consider how we charge for what we do, alongside what we charge for doing it. We believe the industry is shifting away from a charging model based on percentages and basis points and to a model which charges based on activity and, in some cases, performance. This is happening in line with and to enable a conversation with clients based on value. How can an adviser add the most value and, in adding the highest amount of value possible, what is the price the client can justify?
This is real disruption and innovation and we look forward to jumping headfirst into that very arena in 2018!