I confess, I’m a tech junkie. I rarely go anywhere without my pads, pods and laptop. One of the things that amazes me about technology is how many things that used to be very expensive are now cheap (or free) because of a Mac app. With the touch of a button I can check the weather, find a restaurant or even figure out where the heck I am.
Financial advisors have seen huge advances in technology, as well. Old-school brokers, back in the day, used a paper ticker tape. Any company information gathered back then was the result of paying a hefty amount for a service or relying on your own company’s analysts. Today much of this information can be gathered on the Internet for free. And some of it is even accurate!
With all this free info floating around, investors tired of paying for a broker’s advice when they could do all the research they wanted on their own. They just wanted a company to execute the trade. This resulted in the birth of the online brokerage firms and the $20 trade. As more companies jumped on the bandwagon even the $20 charge was too much. Today online companies are giving away stock trades. What was once a mystery, and worth paying for, has now become commonplace and a commodity.
As a result, in the past decade brokerage firms have been dropping like flies. Those that could, merged or got bought by bigger firms. This consolidation is still taking place today. When margins get compressed, everybody in the financial services industry pays for it.
The other day I had lunch with a broker who did a large amount of fee-based business. We had a spirited discussion on the very topic of his worthiness for all the fees he charges. I told him, “You’d better watch out before somebody writes an app that makes you obsolete.” He scoffed back, “Hey, I’m worth every penny I charge my clients. They’re happy to pay me.”
I went on to tell him, all things being equal, I didn’t think anyone is happy to pay for something when they can get it for free or really, really cheap. A few rounds later he looked up from his overpriced drink and asked, “You don’t seriously think an app will bring down the financial services industry, do you?”
I’m sure Mr. Kodak didn’t think the digital camera would kill his business either. “You never know what can happen,” I said. “Cheaper and easier is pretty tough to beat.”