For well over a year now I, among others, have been championing the need for the financial services industry to adopt social media tools to stay ahead of the marketing curve that is overwhelming brands today. The accepted truth at this point is that social media is NOT a fad, and that a social strategy is no longer an option- but a necessity to maintain credibility and success in a wired world.
The need to adopt and then adapt to the changes in the modern communication paradigm is akin to Charles Darwin’s early theories of evolution and the idea of natural selection. Those prepared to adopt and then adapt to the changes in how people communicate and share information will be in the best position to leverage their opportunities to exert influence and survive. For financial advisors, this means that an online presence will become a necessity to keep up with the conditioning that is already happening today as financial information and tools become more and more commoditized.
In recent years as pension funds and defined benefit plans have become nearly extinct in the private sector, the growth of 401(k)’s and contributor funded retirement products have taken their place. The burden to provide funds to maintain an income in retirement has shifted, placing a larger share and responsibility on the individuals to save on their own. In order to facilitate the process, many 401(k) providers have streamlined their product offerings and increased the utility of their on-line tools for customers to customize their unique plans. Workers are empowered to decide how much they will contribute and where they will invest given a limited menu of investment options. In my opinion, the advent of target date funds was created to simply this process even further, by providing an off the shelf asset allocation solution. In this case the only decision one had to make was to estimate when they thought they would retire, and then click the appropriate box.
The automation of the retirement saving process has conditioned workers to feel more and more comfortable doing the work themselves without a NEED for financial advice. New generations of workers, without any knowledge or expectation of a defined benefit plan, or the uncertainty of social security benefits, will enter the workforce not knowing any other way to invest. The do-it-yourself mentality has been imprinted. So what does that mean for financial advisors?
It means, that financial advisors will need to play in the same playground to remain relevant and leverage their unique thought leadership to differentiate their added value. The assumption, and the mistake, that 401(k) automation processes make is that they are democratic- they treat everyone the same. It doesn’t matter if you have $1000 or $1 million in your 401(k) plan, the investment options and the distribution processes are the same. The level of advice is the same as well- an 1- 800 telephone number to a call center where after a number of prompts will get to speak with a person (maybe) with limited to no knowledge of your investment time horizon, goals or risk tolerance. As a result, my former SIMPLE IRA clients had better financial plans and advice because I had a relationship with them, unlike Fidelity or Vanguard that did not.
THIS IS WHERE THE OPPORTUNITY EXISTS!
Assuming that your prospects have a working knowledge and comfort level of managing their investment planning experience on-line via their 401(k) provider- how much more value would you need to provide to make a difference? Probably not that much, however, you need to be AVAILABLE on-line to be part of the conversation. If invstors are being conditioned to manage their retirement assets on-line, doesn’t it make sense to be on-line to have a shot at managing those assets? This isn’t limited to 401(k) plans, but extends to people with on-line accounts that don’t know what they are doing.
I recognize that for many this isn’t even an option yet due to compliance or regulatory concerns. However, if we accept that this change is already happening, then I would encourage you to be vocal and to express the need for your firm, RIA or broker/dealer to accept the changing landscape of client communications and explore how to participate in social media in a compliant fashion. Early adopters in this space will have a competitive advantage not only in being first, but being the most versed once the expectation for online presence reaches critical mass. We are getting closer each day.
In my estimation, it takes three things for people to effectively manage their own investment portfolio: time, knowledge, and inclination. The fact is people rarely have the discipline to maintain all three- and that’s why they need you.
If we accept that the way people invest, shop, bank and share is evolving in a wired world, then your challenge, and opportunity, is to find a way to adapt to the shifting sands of this new communication paradigm and accept the natural selection in the digital age.
So what do you think? Are we in a new communication paradigm? Has the investment planning process become commoditized?
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