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Industry Spotlight > Women in Wealth

These 'Future Shocks' Could Shake Up Wealth Management

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Alvin Toffler, author of the seminal 1970 bestseller “Future Shock,” forecast world-changing realities such as the digital revolution, the threat of terrorism and the decline of the nuclear family.

Now, in an interview with ThinkAdvisor, Maria Bothwell, president-CEO of Toffler Associates, a future-focused consultancy Toffler launched in 1996, discusses future shocks to the financial services industry and how firms can take steps now to seize opportunities that such shocks, or risks, introduce.

Bothwell argues that to be well prepared to meet future challenges, the industry must focus proactively not only on changes within its own space but changes occurring outside it, too.  Such changes directly impact companies in investment portfolios.

In the interview, she identifies and discusses four drivers of future change — forces shaping the future — and their accompanying risks.

Bothwell, who previously held leadership posts at North Highland consulting company and Arthur Andersen, talks also about a provocative group exercise called “Flash Future” that Toffler Associates conducts. It looks backward from the future to encourage clients to make decisions now that will enable them to make the most of opportunities that lie ahead.

Toffler and wife Heidi Toffler — writing partners on all the Toffler books — co-founded Toffler Associates with business consultant Tom Johnson in 1996. The strategic consultancy advises consumers, companies and governments globally, including the U.S. Department of Homeland Security, with whom it has collaborated on exploring future threats. Alvin and Heidi Toffler died in 2016 and February 2019, respectively. Johnson, now sole owner of the consultancy, is retired.

ThinkAdvisor recently interviewed Bothwell, promoted from chief operating officer to CEO last December. Speaking by phone from her Arlington, Virginia, office, she harked back to the future when this reporter noted that, in a 1983 interview she conducted with Toffler, he mentioned his bent for writing in coffeehouses.

“Probably he did that because he liked talking to people,” Bothwell remarked. “It was a part of his research: observation and speaking with as many people as possible. And asking questions — the power of not making assumptions but being more inquisitive.”

Here are highlights of our conversation:

THINKADADVISOR: In 2006, Alvin Toffler said in an interview with me: “Nobody knows the future with certainty. Anybody who says they do is a quack or a loon.”

MARIA BOTHWELL: Yes, we can only talk about possibilities in the future and their implications, which is a good way to talk about risk and opportunity — and what you need to do about those possibilities today.

What are some possibilities?

We focus on the drivers of future change and how those will impact various industries and companies differently. They create [various] shocks when it comes to risk and opportunity.

What are the “flash future” exercises for groups that Toffler Associates conducts?

They may be for a company that’s looking at acquisitions or trying to figure out where to invest their R&D money. Depending on the problem we’re trying to solve, we draw up a timeline of possible future events that might happen in, say, 10 or 20 years. We might have four possible futures to explore, and we’ll work backwards to the current day.

Is that what you call a “back plan?”

Yes. We look at the implications something has in the future based on the drivers of change, and then we’ll back plan: What does that mean for this organization now? In the coming months, we’re doing a flash future at a bank board meeting to creatively look further out and see what the possibilities are in the future. Then we’ll pull it back to what they need to focus on now — or within the next three years — to prepare.

What changes could brokerage firms make to compete in the future and keep growing?

The disruption is going to come from technology advances and consumer expectations generated and created not just in their own industry but in other [fields] too. Financial services — among other industries — are so focused on what’s happening in their own [space] but not what’s going on [elsewhere].

Why is that?

I sometimes wonder if [wealth management] companies have lost their imagination. The failure to imagine possibilities for your clients may be a risk unto itself.

What are examples of changes occurring outside the wealth management industry that are future big risks to investors?

Things like policy regulation, changes with regard to trade, the environment, immigration. All these have direct impact on companies in investors’ portfolios. So that has to be worked into algorithms [that financial firms create]. This is what I mean by failure to imagine things. Imagining possibilities as being risks is looking at these other impacts.

What are the four drivers of change that you see, in random order?

One is societal collision. How is that changing the identities of individuals and groups, and how is it changing how we consider our role in society as individuals and communities? Social media, for example, is one lens that’s already making a change.

What’s another driver?

Infrastructure adaptation. Financial services are part of that. Think of the increasingly complex digitized and interconnected infrastructure that’s restrained by regulatory requirements, investments and other human influences. Some cities have been investing in smart technology, but others haven’t. So in the future, based on the investments of today in infrastructure adaptation, cities will be pretty different from one another.

What are the other two drivers of change?

One is bio-digital convergence [increasing intersection between humans and machines]. This affects, for example, decision-making. And the fourth is power shift. In an organizational sense, it could be power at [the top] shifting to the power of the employee or power of the consumer influencing company policy.

So, to what extent does digital disruption affect financial services?

It’s clearly all over the financial services arena. Every major wealth management firm is putting money into predictive analytics and behavioral analytics, not just to create robo-advisors but also to create recommendations for their financial advisors [based on] investors’ past behavior, past decision-making, what was going on in the market. They’re looking at thousands of indicators to come up with what may be appropriate for the client.

What’s wrong with that picture?

An individual may be very comfortable with those types of predictive analytics and recommendations for, say, [inexpensive] music or entertainment [purchases], but the risk could be much greater when you’re talking about their retirement.

What other digital disruption will change things substantially?

Frictionless transactions, such as those used at retail in China now and what Amazon Go is doing in its pilot [cashier-less] convenience stores [in Seattle, Chicago and San Francisco]. Sensors all over the store pick up what you pull off the shelves. You just walk out the door, and your account is charged. This is a retail setting, but it’s hugely relevant to almost every industry. Frictionless transactions are going to be commonplace at retail in three to five years, but it will extend to other industries. You can’t isolate it and say it’s just going to happen [in stores].

What else is important to consider about new technologies that’s relevant to financial services?

Everybody is jumping on fintech ideas and looking at cryptocurrency and AI — a lot of things people are making investments in. But they haven’t given much thought to the psychological human impact. Will the financial advisor trust [the tech] so they can use it? Will the investor speaking with the advisor or interfacing online trust it? So there’s the whole aspect of privacy trust. Every week there’s news about another data breach or false information.

Please elaborate on privacy risk.

Cell phones, iPads, Alexa, Echo Dot, even pacemakers — in addition to passwords and online accounts — are all access points to our data privacy and physical privacy. A pacemaker can be hacked and the instructions to the device altered. Every single device and log-on is an access point where someone can do something bad, like steal your money. But if you think of that in the context of an organization, something far more drastic [wide-ranging] can occur.

What other risks will change financial services?

A lot of the shocks that are coming are related to the brokerage industry. For example, trust erosion and trust validation. That definitely has huge implications to the financial sector and particularly to wealth management of the global advisor companies. [Firms] have to trust that their algorithms are good since their human creators could have biases or can make false assumptions. Both the financial advisor and the investor have to accept and trust what the AI is telling them.

A couple of years ago, fearing that robo-advisors would replace human FAs, advisors were worried and upset.

I’ve [personally] observed a trend in the last year or two of an increase in advertising by wealth management firms with the intended message: “We haven’t lost the human touch.” That’s almost like a defensive maneuver to the robo-advisors in trying to keep people connected by human spirit.

Any other risk that FAs should be aware of?

Longevity is creating risks in wealth management. With [continuing] medical advances, the average life span will go from 70-something to about 100 in the next 20 years. That poses tremendous risk for wealth management, and this should be part of what firms are thinking about when building algorithms: It’s not just what the average life span is today but what clients’ children’s life span will be 20 years from now. That’s an example of a risk outside the industry but one that absolutely has great impact on it.

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