Innovation | 02.17.21
The Pandemic Will End – These Trends Will Continue
As more Americans get fully vaccinated and spring rolls into summer, there is seemingly at long last some light at the end of the tunnel.
And when the pandemic fades from memory, members of the advisory industry say, there are going to be a number of game-changing trends that are here to stay.
A Legitimate Role for Social Media
The whole Game Stop short squeeze by the “r/wallstreetbets” community underscored the power of social media. Talk about a perfect storm; one that is bound to have lasting consequences. With more free time – and free trading apps – the financial services realm now leaps a new generation of investors, some floundering greenhorns learning lessons the hard way, for sure. Others, however, are proving savvy and are flourishing while engaging with entirely new types of “influencers,” and via an array of mediums (e.g., videos and podcasts).
A brazen segment will be drawn to Redditt sub-groups while in their early to mid-20s; and perhaps soon enough, some believe, there’ll be time for asset allocation and financial plans. The interest in finance is at least there, a fuse, lit.
In the past, advisers largely viewed social media as a marketing tool that targeted only millennial and Gen Z clients. “Clearly, that narrative has changed as the pandemic-fueled interest in finance has turned social media and financial advice into a full-blown business model,” Investment News said.
Fidelity Investments, for instance, recently hosted an hour-long Reddit discussion.
Cryptocurrency Goes Mainstream
When it comes to digital money, it’s not just Bitcoin, although the oldest, largest, best-known crypto is something of a runaway train. The price of one BTC has soared to more than $50,000. That’s a staggering increase of more than 1,000% since the lows BTC hit in March of 2020 during the start of the pandemic.
The Securities and Exchange Commission is now seriously looking at the possibilities for an exchange-traded product to track the price of BTC if only so that retail investors have some options that are regulated. The prospect of billions of dollars flooding into the market, following the lead of Tesla, has institutional investors on notice. And that is why America’s oldest bank, BNY Mellon, with $47 trillion in assets under custody, is launching, later this year, a digital custody unit.
Decentralized exchanges, where software varietals known as smart contracts abet automated market making, have exploded in the past few months; one “DEX,” a blockchain-based platform called Uniswap, has crossed $100 billion in total crypto trading volume cumulatively having taken place since the summer. And yes there is a digital coin called PancakeSwap (symbol: CAKE) which is tied to a DEX platform which executed $400 million worth of decentralized trades just in one day, putting traditional centralized exchanges on notice that there are disruptors looking to dislodge intermediaries (while being named after a breakfast staple). And this growing reality is why money management behemoth Alliance Bernstein is telling clients to pay attention to the more esoteric corners of the crypto realm. Advisors with their head in the sand would be wise to lean into some of these crypto storylines that do not seem to be going away.
Risk Management Rises
At the start of the pandemic, many advisors reported having had to do a lot of hand-holding as the market went into a tailspin. Adherence to risk management paid off as clients came to grips with the kind of volatility they deemed acceptable and then worked with planners coloring within bright lines.
To better enable these conversations, brokers are stepping up their use of risk-management tools.
According to software makers, brokers’ clients remain nervous about the pandemic-ravaged economy.
Just as people are looking around their homes and seeing lots of things to throw out, they are now more inclined to take stock of their financial accounts. The days of sitting back and not facing up to this kind of thing could be over if only because so much cool new software tools and apps make it easier to come to terms with.
Now brokers can more easily communicate with clients regarding assets held outside their firms teeing up conversations about consolidating.
BlackRock’s Aladdin Wealth software reportedly saw a spike in usage since the COVID-19 crisis emerged.
Last March and April, there was nearly a 30% increase of financial advisors running risk and stress-testing analysis on client portfolios, Sudhir Nair, global head of the Aladdin product line, has said publicly.
Leveraging Technology for Compliance
Dale Brown, CEO of the Financial Services Institute, recently spelled out priorities. Among them: modernization of compliance practices. The FSI is encouraging regulators to adopt more strategic use of current technological innovations, i.e., virtual examinations and e-delivery for key documents.
“Know your customer.” It’s more than an adage. It is the impetus for a lot of anti-money laundering (AML) paperwork, the kind of tedious process that can slow down the on-boarding of a new client. These processes are now getting much, much easier. Thank the pandemic and the digitization of everything plus the rise of artificial intelligence.
Saphyre, for example, is an AI fintech startup that digitizes institutional on-boarding transactions (email, phone, faxes, and spreadsheets) and saves all of the documentation.
Digital Advice Platforms
Charles Schwab is huge. They pioneered discount brokerage.
ETF assets are exploding.
Automated investing, or “robo advisors,” wielding ETFs, has never been more popular, despite what advisors keep telling themselves about the need for a human touch in times of strife. This is a low-fee end-game that everyone can see happening in front of them. Everything gets easier, faster and automatic.
Schwab Intelligent Portfolios is becoming a sort of Spotify of low-fee investing. It is $30 a month. It’s got traction, it’s changing the game and it’s not going away.
Workflow Documented Digitally
Processes that have scattered to the wind (laptops, at home) still have to be codified, tracked, and documented.
More advisory operations are working harder to document work processes so teammates, while apart, remain together – working from the same template.
The AdvisorTouch system is an example of what’s happening in this space. Gaining in popularity, it allows users to improve and systematize the key systems and facets of their businesses.
The Accelerating Extinction of Transactional Models
When the pandemic began, advisors steeped in a more transactional type of business model quickly realized the struggle they had on their hands, as old ways of prospecting dried up.
Meanwhile, asset-based models allowed for the focus to shift to intense client service, bringing peace of mind to retirement investors – and, for advisors, recurring revenue. If done well, the service-driven approach perhaps sparked some referrals.
Financial advisors for years have been weaning off commissions; the pandemic stood to make that transition happen faster, according to well-known planner and pundit, Michael Kitces of Buckingham Wealth Partners.
Disrupt, Innovate, Repeat
Everything changed during the pandemic.
Businesses that were able adapt thrived. Examples include makers of technologies facilitating remote work and e-commerce.
Think disruption will start to wane after the pandemic ends?
Consumers and businesses are getting used to fast-moving innovations that solve problems, create opportunities, and increase productivity.
The ‘can-do, let’s figure it out’ ethos that will get us through the pandemic will be with us for a long time to come.