Greater competition from fintech firms is only the beginning.
Financial advisors need to be on the alert for other businesses that are planning to slowly encroach on the wealth management space, argues technology strategy consultant Craig Iskowitz, founder and CEO of Ezra Group, in an interview with ThinkAdvisor.
Competition from these companies makes it imperative for advisors to “explain their value and keep coming up with new value,” says Iskowitz, who melds expertise in technology with three decades of experience in the financial services industry.
Giants such as Amazon and Uber, in addition to online banking firms and other enterprises, are gradually offering financial services like lending, credit cards and checking accounts, he points out.
That’s just a prelude to extending their reach into wealth management, he asserts.
These firms will beguile consumers by promoting ease of service “just a click away,” forecasts Iskowitz, who offers consulting services to BDs, RIAs, banks and other industry segments, such as tech vendors.
In the interview, he predicts declining revenue for FAs as a result of all the competition, pressuring them to add more value.
As “automated services slowly creep up the value chain … advisors have to move up the value chain, too,” he says.
The competition comes as jobs that “advisors want to do” are increasingly being taken over by automation, maintains Iskowitz, on the strategic advisor board of Blockchange and Absolute Engagement’s advisory board.
East Brunswick, New Jersey-based Iskowitz, who started out as a computer programmer, also opines on cryptocurrency (“controversial” only “to people who are threatened by it”); returning-to-the-office issues (“You can’t put the genie [working from home] back in the bottle.”); and selling insurance (part of “being a holistic” financial advisor).
ThinkAdvisor recently interviewed Iskowitz, speaking by phone from East Brunswick.
Another provocative topic — how to serve Generation Y — brought this provocative response: The idea of millennials “needing different financial services is overblown,” he said.
Here are highlights of our interview:
THINKADVISOR: What’s the biggest challenge facing financial advisors today?
CRAIG ISKOWITZ: Expressing and explaining their value to clients. Advisors need to be able to explain their value and keep coming up with new value. That’s always been an issue. But it may be more so now since there’s more competition from different [business] categories.
There are dozens of robo platforms and fintech apps looking for people’s money. So why should they pay an advisor? Every day there are more and more easy options just a click away.
Automated services are slowly creeping up the value chain and offering more and more options and more and more advice. As advice becomes more automated — as the robo-advisors build their systems and technologies to offer more — advisors have to move up the value chain, too.
What other types of firms will be competing with FAs, and what are the economic implications for advisors?
In general, advisors are going to see pricing pressure as more fintech companies get into wealth management. Many firms will be able to offer it on their apps as a service.
But you don’t need to be a provider; you just need to plug into something. For example, Uber drivers can get insurance through Uber. So why not an Uber checking account or savings account, too?
Do you perceive a greater convergence of banking and wealth management coming?
Yes. Amazon does lending, which is a form of financial services. They offer a credit card, and they’re [reportedly] talking about offering a checking account.
Presumably, these other companies will have to partner with financial services firms to offer wealth management, right?
They could partner with a wealth management firm, but they won’t have advisors.
They’re going to want an online version, like a robo, which would be white-labeled. They’d have to disclose who their partner is, in small print. But customers won’t care.
Has this trend already begun?
Chime [fintech company with banking services, is expected to have] 13 million account holders [by year’s end].
They offer checking and ATMs, but they’re also branching out into lending. So, then, why not branch out into wealth? That’s the next logical service: “We’ve got your checking account, savings account, loans. How about an IRA?”
Is it appropriate for FAs to feel anxious about all this competition?
Absolutely. Advisors have to keep changing.
There are lots of different ways that people are interacting with financial services, and that’s going to put more pressure on advisors — and give them more reason to offer more value.
How will this affect their compensation?
In general, you’re going to see compensation go down because there are so many other options for clients. There’s so much technology to take over jobs that advisors want to do.