Outside in the distance, a wild cat did growl
Two riders were approaching, the wind began to howl
All along the watchtower - Bob Dylan (1968)
Even though there's no overt threat, there's an ominous feeling of disquiet in Bob Dylan's 'All along the watchtower'. Something's clearly not right about the world. There's an undercurrent of danger. You just can't be sure what it is.
Across the globe, financial services businesses are living out a similar fear and unrest. In my 45 year career I've never felt so much uncertainty and anxiety about what's to come.
I saw it constantly in the USA, UK, Europe and Asia over the past seven weeks. I presented and talked with representatives of investment managers, life companies, banks, advisors, financial planning software companies and robo-advice platforms.
Everyone's affected - even the biggest names. Brand, size and past performance are no longer the ticket to future success. Competition is red-hot. Disrupters attacking from all sides. Many are running hard just to stand still. Others are going backwards.
I want to share what I've learned and tell you about what FinaMetrica is doing to help people respond.
It's all about relationships
Wherever I was, I had similar conversations. Four forces are reshaping relationships in the financial services sector. Each resonates with Dylan's 'Watchtower'.
1. There must be some kind of way out here, said the joker to the thief
The old business relationships are failing to deliver - in two key ways.
First, many investment managers are losing the funds inflows they enjoyed from the traditional 'gate-keepers' such as asset consulting firms, sovereign-funds and defined-benefit pension plans. That's why they are spending heavily to create new relationship tools.
Second, the traditional relationships used to build product solutions are breaking down. Large firms used to partner with large firms - reputation and capital almost always won the day. But now, simply presenting brand and size is no longer enough. In the age of Uber, firms that can 'do it better' are breaking through.
2. Business men they drink my wine, plowmen dig my earth
Everyone is aggressively out to eat everyone else's lunch. Taking someone else's customer is the only way to grow in a stagnant market - and funds management has flat-lined. Growth barely matches inflation, so global investment managers are working to grow profits by growing market-share. Product offerings are rapidly widening. We see active managers rushing to add passive alternatives, while passive managers are creating active products! Everyone agrees. Passive will be massive.
This is a different face of competition. Many in financial services won't recognise it. This new competition is about using technology and partnerships to get and keep your competitor's clients. That's a different ball game from when competition was about performance and reputation - when the game was played in a growing market -where virtually everyone with a beguiling story could 'win'.
3. No reason to get excited, the robo kindly spoke
Investment managers desperately need to create new relationships that are 'sticky' and profitable. Their key relationship builder today isn't performance or brand - it's auto-advice technology. Fidelity and BlackRock are setting the scene - cross subsidised technology to link to advisors and investors.
The cost of auto-advice is rapidly approaching zero, as investment managers simply want the distribution channel. Every day it seems another has either built or bought a robo-advisor to help them build relationships with businesses that have clients to serve, such as financial advisors, banks and platforms.
4. So let us not talk falsely now, the hour is getting late
Most regulators around the world are abandoning 'tick-a-box' compliance in favour of 'principals-based' systems. The new compliance regime enforces a standard which must be met, rather than a list that must be followed. Firms must now prove they have taken the steps required to meet a standard - and many appear to be struggling.
Large organisations, such as banks, need quality systems that deliver consistent experiences across all channels. Under the new regulatory environment it's indefensible that different arms of the same organisation can give different answers to the same question. And of course, it's this type of inconsistency that alienates clients, diminishes confidence and undermines trust.
Can you feel your own pulse starting to quicken? My guess is that some, or all, of these forces are already at work changing your business. So I think you will interested in what FinaMetrica is doing to help you control your future.
FinaMetrica builds trust & confidence
It's not just the providers like us caught in this turmoil. Our customers are also experiencing a crisis of faith and confidence. Volatility causes distress when markets behave in a way that investors did not expect or is outside their risk comfort zone. They are also suffering. The industry must 'up its game'.
Managing trust and confidence are the core of quality relationships. Our subscribers tell us that we help them create and reinforce both. Our risk profiling tools build strong relationships through a simple intimacy based on 'no surprises'. We've assisted our subscribers to win, and retain, hundreds of thousands of clients over almost 20 years.
Every market correction sees investors lose money by trading at the wrong time. Evidence shows investors are likely to sell-out toward the bottom of the market. We also know, they are just as likely to buy in at the wrong time too - after most of the gains have been made.
FinaMetrica's risk tolerance profiling:
• Scientifically assesses risk tolerance at an 'evidentiary' level - we are defensible in front of a regulator or a court
• Has an evidence based method to map risk tolerance scores to multi-asset portfolios
• Includes best practice education tools to frame investors' expectations, particularly about volatility and returns.
Over the past few years we have been working hard to make our risk tolerance profiling easier to access and simpler to use. Our goal has been to partner with others in the service chain to enrich advisor's conversations. We've integrated into a wide range of systems with open architecture APIs such as robo-advisors, financial planning software, CRMs, data aggregators, research houses, scenario testers and other services.
One of our more notable integrations is now more than 10 years old. It provides for multi-currency, multi-jurisdiction planning in both robo and human advice channels. We now have a risk tolerance profiling solution scalable across financial planning and investment management firms of all sizes, wherever they are in the world.
All along the watchtowers
As I looked, from my watchtowers, across the financial skylines of New York, London, Berlin and Singapore I wondered if the approaching riders were bringing news of something bad that it was too late to change, or sounding a warning about the future.
I think it is a warning. There is trouble ahead and it is time to change the way that things are done.
That's what we are doing - helping people build better advice systems. That protects your business from Dylan's approaching riders and delivers your clients a superior experience and outcomes.