The savviest investors are looking ever-forward, betting that disruptive inflection points in business they shrewdly spot on the horizon will greatly affect firms in the future. Indeed, noting these early can mean holding a strategic investing advantage. “Opening your mind so you’re prepared for what unfolds” is at the heart of it, maintains Rita McGrath, a Columbia Business School professor and expert on growth and innovation, in an interview with ThinkAdvisor.
Inflection points are big shifts in the business landscape produced by often-subtle trends that have been gestating for a time, McGrath says.
She explains the art and science of discerning inflection points in her new book, “Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen” (Houghton Mifflin Harcourt, September 2019).
In the interview, McGrath, whose consultancy, Rita McGrath Group, serves clients such as GE, LinkedIn and Prudential, discusses the biggest recent inflection point to impact financial advisors.
As for what could trigger a U.S. recession, all the signs are there for “1999 all over again” — that is, a big bust on the heels of a big boom, she argues.
The popular speaker, ranked No. 1 for strategy by Thinkers50, also revealed how spotting inflection points can be helpful in creating specific investing strategies.
ThinkAdvisor recently interviewed McGrath, on the phone from her office in Princeton, New Jersey. The author of “The End of Competitive Advantage” (2013) stressed that anticipating the arrival of an inflection point means observing changes that are “brewing at the periphery.” “Snow melts from the edges” is the analogy she likes.
Here are highlights of our interview:
THINKADVISOR: What major inflection points have occurred recently in the financial services industry?
RITA MCGRATH: The biggest thing is the direct-to-consumer model. It has completely changed the cost structures and assumptions that financial advisors need to operate under. Today, anybody with a computer can structure a portfolio around a specific interest — and for a very low cost. Robo-advisors are part of this.
What are implications for the future?
Some really big changes in human desires and human needs are happening. People don’t want to sit across the desk from an advisor.
I have a big question about the financial advisory business overall. Warren Buffett is very skeptical when he says, “Why do we need to pay all these middlemen to make basic financial decisions when so much information is readily available?” He thinks it’s, kind of, a waste of money.
Do you agree?
Well, what I like about my financial advisor is that he doesn’t do just charts and graphs and tell us, “Your portfolio needs rebalancing.” He forces us to sit down and talk about our lives, which is great. Financial advisors need to get beyond just the finance part. Nobody buys financial advisor services because that’s what they want. They want something else. [FAs] are advising people about their lives. So it’s a whole different ball game.
Was Donald Trump’s becoming president an inflection point?
It was the culmination of an inflection point that took root in the 1970s and 80s, when you started to see corporations being run for their shareholders only and everybody else with a stake in the company losing out. There was the rising cost of things like health care and education. Workers lost out in terms of pay and job security. All that produced the populist movement.
And that’s where Trump stepped in?