“New developments in machine intelligence will make us far smarter as a result, for everyone on the planet. It's because our smartphones are basically supercomputers.”

—Eric Schmidt, Executive Chairman, Google, USA

The overarching trend that impacts financial advisors in a significant way is the disruptive change created by technology or digital strategies. The current generation of millennials has grown up with technology and is very comfortable using it. In fact, be careful they aren't the only ones embracing this transformation into a digital world. My 85‐year‐old mother is comfortable navigating the Internet and looking up recipes online. Transitioning to other Internet‐based capabilities will not be a big challenge. More and more, we are all getting used to life with technology. We are using the Global Positioning System (GPS) in our autos, and our smartphones are loaded with a host of applications. We are measuring our exercise programs and using a tablet to replace our television remote controls. We have Wi‐Fi throughout our homes to use our laptops and tablets. This evolution is not just about the “younger generation.” The impact on financial advisors and the firms they work for is continuing to evolve at a rapid pace.

As soon as the latest technology is introduced, it becomes outdated within 18 months since innovation is taking place at such a rapid pace. The financial services industry is trying to stay ahead of the game; however, much of the innovation is taking place outside of the ecosystem of the major firms. This innovation is commonly referred to as “fin‐tech” or financial services technology. Adoption of modern technologies centers around three important characteristics: An evolving regulatory environment, institutional inertia and the issue of legacy systems, and gaining the public's trust will be key to ensuring widespread adoption of new financial technologies.

A key trend that impacts financial advisors and teams in a significant way is the disruptive change created by the many technology or digital strategies. But before we get ahead of ourselves, let's examine a little history that points to the fact that this evolution is really taking place and how it might impact teams.

Some History

I entered the business in 1978, and the technology we used was called a Quotron machine. It was basically a desktop PC 286, and you couldn't do much with it. You could only extract information; you couldn't put information back into it other than simple account opening information. It was the first financial data technology to deliver stock market quotes to an electronic screen rather than on a printed ticker tape. We had rows of stocks that we followed that would flash to alert us if any price changes were occurring.

The competitive advantage that we had as a firm in those days was the way in which information was pushed to us in a very transactional world. Information was a specialty of the firms that provided it, whether it be research on various companies or fixed income; reports on almost every product area were provided by research analysts in the firms that we worked for.

Much of the innovation occurred with new product development. By that I mean ideas like liquid yield option notes, zero coupon bonds, Tigers, Spyders (SPDRs), and now exchange‐traded funds (ETFs). I remember the New Perspective mutual fund, which was one of the first mutual funds we had marketed. There were plenty of tax‐sheltered products involving helicopter leasing, DNA plant technology, real estate, and thoroughbred horse racing, to name a few. Wall Street was being very innovative in all sorts of hybrid equity and fixed income products, and, as a firm, we would be the first to market these products to a constituency. We would always be the first to show investors something new, and that gave us a marketing edge or first mover advantage. Talking about something new, something exciting, generated a certain excitement out there in the public domain.

When we introduced the cash management account in the 1970s, the brokerage account as we knew it changed forever. It became a combination of the brokerage account and the money market account, and access to your information was a statement with which you had access to the money through a Visa debit card and a check‐writing privilege. It took competitors 18 months to respond to that kind of creativity, disruption, and innovation. While the minimum account size was $20,000, very quickly the average account grew within a few years to over $275,000. This type of an account is a staple in most firms today.

The traditional money market account had maybe $5,000 or $10,000, and the idea was to use it as a “parking vehicle” in which, when a transaction occurred and needed to be paid, you'd debit the money market account and meet the payment obligation by settlement date usually in five days. What's been happening is that a lot of the innovation has been coming outside of Wall Street investment firms. This lock on capturing all the creativity of these brilliant minds, from a technology point of view, isn't necessarily with those firms.

When you think about disruption, innovation, and sustainability, the question remains: “Is Wall Street going to try to take advantage of technology once it is created, or will it to try to create or develop its own disruption in the marketplace to gain a competitive advantage?”

We believe firms must be able to manage the client relationships and the data mining of client information. This will have the potential to give firms more precise information about their clients, their spending habits, lifestyles, charities, and more. In the past, we viewed client connectivity based on their having five or six services. We might have their mortgage, their cash management account, a managed solution, a portfolio of professional asset managers, and their retirement plan or individual retirement account (IRA). You might do a financial plan for that client or some insurance, or a liability management product (credit and lending). That created what we called “stickiness” with the client, which made it very difficult for the client to leave the advisor because they were attached to all these different services that were provided. Most products and research available today is a commodity, meaning that there is no longer a differentiating competitive advantage. Every firm has a similar offering. This is the environment that teams face today. How will teams differentiate themselves in a commoditized marketplace with continuous pressure on fees being charged?

Now, as we started to look at the future, how will advisor teams and firms create an improved connectivity with clients. We are seeing clients connecting with their banks online and using mobile technologies. Automated bill payment services have been around for quite some time. Perhaps differentiated applications that connect clients directly to their advisors at specific scheduled times in an automated way are close at hand. If a firm has its own competitive applications that provide two‐way connectivity, perhaps artificial intelligence will be used for the basic questions and responses. The more ways in which firms can connect and provide useful services to clients via technology will be a differentiating competitive advantage in the foreseeable future. The extent to which firms begin to look at ways to understand the opportunity and connect with their client in multiple ways will be an important retention strategy, which means you might send a YouTube video link on a product or service or something that's interesting that they might want to hear about.

You might communicate with them via Skype or other two‐way video technology services, which allows clients to basically have a face‐to‐face meeting with you even though they're not sitting in your office. We don't know how we're going to use all this technology at this point. But one of the things that we do know is that small industry players are going in and capturing market share. For example, when you look at firms like Betterment, Wealthfront, Personal Capital, Motif, and other digital advice channels, they're getting a toehold in consumer relationships. It begs the question: How will advisors take advice and guidance and couple technology and provide a unique client experience? Advisors will need to anchor the client relationship in a way that marries high tech, but with a high‐touch capability going forward.

What About the Teams?

I'm reluctant to talk about the technology that can be used today because it may very well become passé in 18 months, as I mentioned at the beginning of the chapter. But how are teams using technology? They are using it for everything from customer relationship management (CRM) tools to access client information to applications that help manage workflows, applications that help with portfolio management and rebalancing, account aggregation, and other client management capabilities. There are tools that enable alerts to take place when it's time to talk to a client and to recall what the previous conversation was about; overall client communication digitally, face‐to‐face via the client's mobile or iPad, no matter where the client might reside; and all the social media connections like LinkedIn, for example, using it to cross‐check whom the client might have affiliations with, which might lead to referral opportunities.

There are online calculators that do a ton of analyses and tablet computers for showing client presentations. These tools are becoming very easy for clients to use and calculate their own “what if” scenarios for retirement planning, lending, or credit decisions. There are CRM tools, and advisors now have websites. They just need to be marshaled to the point where they're able not to just create information but also to use a funneling process by which these sites can generate leads. When teams look at what's out there, what's available to make their lives easier, but also to look at how they establish more and more connectivity with the client, that becomes the idea around the use of technology.

And look at the potential for virtual teammates, where there may be a team member with a specialized expertise or capability who might be domiciled in another location or state and can connect to the team via a technology. The challenge for advisor teams is to be familiar with these capabilities, use them, and to be sure to have permission via the compliance department within the firms. We believe that you can't begin to fully tap the potential creative use of technology until you start exploring how to use it to your best advantage. If you take the concepts of collaboration and you use technology as an enabler, you can use the Force Multiplier Effect to make sure that you're managing external relationships as well. That could be a true force multiplier and enhance collaboration among teams and make them more effective.

As the creation and development of one‐off technologies continues, how can these innovations be packaged into one comprehensive solution that is compatible with all of them? Going to one application and inputting data in a CRM, and then entering similar information across a broad range of client solutions such as cash management, a financial plan, a retirement account, or a mortgage application, is time consuming and detracts from client‐facing activities by the team members. Most advisors we speak with would prefer to enter information/data once and have it available for multiple applications. Instead, information about the client must be entered on multiple platforms. This creates an inefficient use of time.

If the team is going after niche markets, they should be able to go online and pull research, publications, and other data within their targeted market area. Technology should help the team source this data and assimilate marketing content to target these specific groups. The data is already in the public domain. Next, the team might want to mine data about any client that is prominent within that specialized niche market and identify via social media for referral opportunities.

Millennials have surpassed Baby Boomers as the nation's largest living generation, according to population estimates released by the US Census Bureau. Millennials, whom we define as those ages 18 to 34 in 2015, now number 75.4 million, surpassing the 74.9 million Baby Boomers (ages 51 to 69). And Generation X (ages 35 to 50 in 2015) is projected to pass the Boomers in population by 2028.¹

Teams will need to think about strategies to bring on and capture some of these tech‐savvy Millennials who are comfortable using technology. Teams will need to add a Millennial team member to perhaps understand and communicate with this demographic. There is a risk that if assets transfer from the Baby Boomer generation to this demographic and advisors don't have relationships with these heirs, they risk losing assets to perhaps a digital advice wealth management channel.

There are more than 80 million Millennials in the United States with an aggregate net worth of more than $2 trillion; by 2018, that is expected to grow to $7 trillion.²

In summary, these are the top industry trends we see having an impact.

Mass Commoditization of Products and Research

There was a time when a firm could innovate a new product and it took the competition 18 months to two years to respond with something similar. The Internet and technology allow a firm to replicate the same product within days of its competitors. Research is no longer proprietary; it's everywhere.

Pursuit of Multiple Channels of Business Development

Advisors will need to proactively create alliances with centers of influence and strategic partners. They will need to establish niche markets and become experts in those markets. They will need to be adept at using social media (i.e., LinkedIn for references and business development). Understanding who a client is connected to in terms of interconnected relationships is key to gaining substantial referral opportunities.

Rising Customer Expectations Due to the Internet

Because of the Internet providing access to financial information, customers will ask, “What am I getting from my advisor?” Teams will need to have a response and a unique value proposition. Teams will need to be efficient in delivering their capabilities and service. New fee models will need to be created because of continued price compression on products and services.

Data Mining

Utilizing account aggregation services (Morningstar's By All Accounts) gives you a complete picture of where your clients' assets are and their spending. This access to data will allow you to improve efficiency in delivering client solutions. CRM tools can provide data, analytics, sales pipeline management, and the generation of advisor and client reports from the cloud. We must get to a point where data about the client resides in the cloud, which is useful in establishing multiple accounts without multiple data entry points.

An Expanding Wealth Management Market

According to research, the future possibilities in the use of technology on the horizon are a “larger [or expanding] wealth management market serving clients across multiple segments (from mass market to ultra‐high net worth) through fully automated solutions, [and with] traditional high‐touch advisors, and hybrid versions of the two that combine virtual advisor interaction with automation and self‐service technology‐based tools.”³

Artificial Intelligence

Can machines think like humans? Artificial intelligence (AI) is having machines perform a variety of tasks, including reasoning, planning, learning, and understanding language. The use of this technology is designed to create greater efficiency and make our jobs easier. The advancement in this technology is possible due to the increase in computer processing power. There has been a trillion‐fold increase in computation power over the past 60 years. We now take it for granted when we speak into our smartphones to look up phone numbers, ask for directions, and find research information. It recognizes our voice and acts accordingly. Firms like SalesForce.com are already researching and exploring AI concepts to change how people interface with clients.

We believe we are in for a ride as technology will continue to have an enormous impact on the financial services industry in the years ahead. Firms and advisor teams will have no choice but to embrace the change and think thoughtfully how to use innovation as a force multiplier to positively impact the client experience.