Can Facebook, Apple, Amazon, Netflix or Google (FAANG) conquer financial advice?
Research from Cerulli Associates asks the question, “How would the market react if the world’s largest tech companies entered the digital financial advice market?” These megafirms have the tools and data to excel, but they face significant obstacles that “will likely preclude their entry,” according to the Cerulli report.
Scott Smith, director at Cerulli, points out that Cerulli research shows that, overall, only 12% of investors comprise the digital advice opportunity segment. That rather limited market is one obstacle for potential entrants from the technology segment.
“These large technology firms excel by meeting unmet demands through scalable technology,” Smith said in a statement. “However, the level of nuance and regulation inherent in financial advice engagement would be difficult to scale to be of strategic interest to the world’s largest technology providers.”
Cerulli uses the example of Amazon CEO Jeff Bezos frequently citing the aphorism, “Your margin is my opportunity.” With the increasing interest in lower-cost investing options, the financial industry’s margins are already in decline, according to Cerulli.
“Becoming a late entrant in a declining-margin business offers little appeal to large, profitable technology providers,” Cerulli states.
Another challenge that technology leaders face is creating a digital platform that can be considered trustworthy and secure.