It certainly was no place for germophobes: moving from station to station of headphones dangling-off album-covered walls, allowing for an instant “treat" of the very latest chart-topping music available. As teenagers, we used to hang out in record stores, not only seeking an accepted and cool place to meet, but, more practically, to get a taste of what tunes were considered to be “hot” at that time. If we wanted to continue listening to our favorite music, when stores were closing at the end of day, we had to buy the album, and the unspoken agreement was as simple as that.
Record stores are now largely a thing of the past, and with their disappearance went a way of life – not for better or worse (subject to your personal perspective, of course) – just different, and importantly, marking both an end and beginning. The disruption of the now-romanticized music world was carried on the back of two major waves: 1) the emergence of internet-based sharing platforms (think Napster) and with it a growing awareness that choice on how and when to consume music was available – at even lower prices; and, 2) an equally important technological evolution that allowed more and more emerging artists to self-produce and distribute their musings, but at a fraction of the original cost. These developments created the basis to undermine the controlling grip of major companies on the industry. The borders of creative expression became fluid, and barriers-to-entry, controlled for many years by only a few major global conglomerates, disappeared.
Fast-forward 30 years. Here I find myself wedged in the midst of an industry conference for financial advisors. Similar to my teenage-record-store self, they come to hang-out, learn about new “hits,” and observe (some with cultivated disinterest) the wave of emerging wealth management boutique firms paired with a fintech revolution washing over. All appears to have an eerie resemblance to the good ol’ record store, and yet most onlookers remain firm in crafting excuses that, in this case, “it is different.” It is surprising, as one would think we are dealing with professionals that are paid for making long-term “predictions.” But are they, really?
Industry research shows that the value proposition of financial advice has long since moved beyond traditionally accepted needs such as investment management and performance; after all, billions of dollars have transitioned from actively managed investment strategies to passive approaches (e.g., Index Funds and ETFs). And now here we are debating the emergence of artificial intelligence leading investment decisions (aka “robo advisors”) as the party to blame for a potentially declining value proposition of human advice. It is shortsighted, as a seismic shift has already occurred, and technological advances, along with new/restated client expectations, will keep the price for financial advice in check. It is also apparent that the “perfect storm” has been brewing for some time, as the occasional financial market fallout, if not crisis, has exposed the widespread inability of most financial services firms to constitute truly differentiating value; this is not to state that there is no benefit in having a trusted human advisor, but we should recognize that consumers will likely become more discriminating in their choices – demanding better services at lower prices.
The good news: it never is purely technology that drives disintermediation between sellers and buyers of goods and services; it also involves the way in which clients are being “heard” and serviced. Blockbuster Video did not go out of business because people stopped watching movies, and Uber’s success has not (yet) been predicated on people no longer driving cars. Rather, both were part of a logical phenomenon of consumers gravitating toward a model of greater convenience, service, and value. In both of these cases, and many other comparisons, it was the lack of a firm’s (or even industry’s) adaptation that led to a “changing of the guard.”
The digitization of financial advice has already become a reality, but it does not mean that human intervention will have to disappear entirely. This in mind, financial services firms and their advisors have no choice but to lead with a higher value proposition, away from traditional structures and service models. In doing so, it is important to 1) reduce or eliminate aspects of their businesses that do not lead to client satisfaction, and 2) accept the inclusion of automated advisory solutions (especially those that have become commoditized) as part of a newly defined “value stack” to clients. Those who adapt a higher sense of purpose and related service delivery have the opportunity not only to survive but thrive, while those who fail to embrace change will suffer an inevitable productivity and succession crisis.
The “groovy tunes” of financial advice will play on, but clients won’t be hanging around the record store much longer to hear them.
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