Innovation | 12.18.19
The 2010s: A Look Back
For retirement investors, saying goodbye to the 2010s is bittersweet. They’re closing the books on one of the most bullish decades in history.
For the advisors helping to oversee those accounts, the past decade will be remembered as one of the most disruptive in terms of the forces, mainly technology-driven but also regulatory in nature, dramatically altering the financial advice profession.
Robo-advisors, zero-commission platforms, lower-fee index products (ETFs) and new client-centric, protective rules have completely changed the game for bank and credit union investment teams tasked with gathering more household investment assets.
These days, big brokerages are known for robo-advisory platforms designed for smart phones. Bitcoin may have flamed out, but "fintech" has generally splintered into quite the many-splendored realm with automation and data science leading the way.
The Betterment Decade
Emblematic of the disruption in the advisory field during the past decade is the rise of Betterment. Debuting at a tech conference in 2010, Betterment helped pioneer an "automated" advisor approach, creating a digital platform that could generate algorithm-driven investment services.
Like Uber, Betterment took an activity that had its share of friction and stripped it down (tax-efficient auto sweeps into low-fee ETFs pre-pegged to a savings goal) so that inertia could do more of the work, and human advisors, less.
Professional financial advisors have long had access to technology and tools that could rebalance assets automatically, but in the past decade, Betterment and the robo-advisors who followed them into the space have put this auto-piloting technology directly in the hands of investors.
Today, Betterment has $16 billion in assets. Dozens of robo-advisory platforms have launched in the past 10 years. Vanguard has more than $100 billion in assets, Schwab's has nearly $40 billion and Wealthfront has $11 billion.
In its report, "The expansion of robo-advisory in wealth management," Deloitte estimates that worldwide there is as much as $3.7 trillion in the hands of as many as 100 robo-advisors in 15 countries. By the year 2025, this figure could quadruple.
As disruptive as this trend has been, it has not yet done to human advisors what Amazon did to small bookstores, owing to the sensitive, serious work of investment advisory and human nature. Sometimes you just want to speak to a human being.
Personal Capital is an example of a service that pairs automated features with human advisors. Betterment has also gone down this hybrid road. The human/machine pairing model is high-tech meets high-touch, and decidedly less transactional.
"Financial institutions have encouraged advisors to shift from a commission-for-transaction model to a model grounded in fees for asset management," a Kehrer Bielan Research & Consulting report said.
Despite steady progress, advisory business still accounts for less than one-quarter of industry revenue, the report said, and within most firms a small percentage of advisors are driving the majority of the business.
External forces such as the advent of robo-advisors and regulatory pressure will compress advisory fees.
To overcome this challenge, firms will have to look to financial planning as a way to differentiate their advice, Kehrer Bielan reported. Banks and credit unions need a wakeup call to understand the urgency of the situation and the broad advantages that financial planning offers.
Enhancing Investors’ Experience
Helping sound the alarm and rise to the challenge is St. Cloud, Minnesota-based Cetera Financial Institutions. The Cetera Financial Group-affiliated firm has focused exclusively on banks and credit unions. Its Fastpath technology is a good example of evolutionary innovation in a stodgy space during the past decade. Essentially, it allows clients to connect with other financial platforms. Simple, yes — but such consolidated integration creates an enhanced experience for the financial institution client to access a variety of tools directly from the financial institution’s website.
“Our goal is to continuously expand on our vision of providing a holistic ecosystem of tools and services to help bank advisors build and strengthen their practices for the long term,” said Sean Casey, executive vice president and director of business development for Cetera Financial Institutions.
The other dominant trend that marked the past decade was the push toward (and retreat from) a fiduciary standard, with the past year bringing and lurching back again toward clients' best interests, as opposed to suitability, all of which has put more pressure on commission-based business models.
The decade started with a banking crisis, and then, despite the stock market gains, continued to bring some harsh truths. Foot traffic has slowed down, with some consumer studies suggesting the typical customer may only visit a bank or credit union a handful of times in a year. Meanwhile, more advisors are retiring, while fewer younger people are embracing the role, creating a net-talent shortage.
What a difference a decade makes. In the aftermath of the financial crisis, with smart phones new to the scene and with regulations still less strident, there surely were ample amounts of customers coming into branches for some IRA rollover handholding from a seasoned representative. One decade later, it seems a safe bet that this frequency of such a scenario has been reduced.
However, new opportunities to meet the customer in his digital life have been created, experts say. Banks are turning to digital tools allowing their consumers to bank and manage wealth from wherever they are.
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