Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Practice Management > Marketing and Communications > Client Retention

Tech Giants Are Creeping Into Finance. What's an Advisor to Do?

Your article was successfully shared with the contacts you provided.

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.

The consultant writes a popular blog and podcast, “WealthTech Today.”

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. 

When [more aspects] of an advisor’s [work] are automated, their compensation is going to go down because clients will say, “I can go to Betterment, or I can get free financial planning. Why am I paying you for it?”

What are your thoughts about the influence of blockchain?

Blockchain is distributed ledger technology. It’s just another way to store data.

A centralized [monetary] authority using blockchain isn’t interesting to me. But with a cryptocurrency like Bitcoin, there’s no centralized authority. It’s an algorithm-based financial service: You can interact directly with the technology.

Blockchain has the capability to have [fast] settlement [of trades], which will help financial services. You don’t have to wait overnight or two days for settlement — which carries risk and requires payments to a custodian, transfer agents and other middlemen — because blockchain itself does the settlement.

But cryptocurrency is controversial. What’s the biggest plus?

It’s only controversial to people who are threatened by it. Cryptocurrency is an overnight success that took decades to create.

What’s great about cryptocurrency, such as Bitcoin, is that it’s all managed automatically because it’s designed as an algorithm. There’s no bank.

Now let’s look at technology’s biggest recent impact on practice management: Financial advisors were allowed — indeed, many were mandated by firms — to work from home during the pandemic.

Now some employers are saying that advisors must come back to the office. How do you see this issue shaking out?

The bubble has burst. Employers had the belief that people didn’t work as well at home, that they weren’t productive there.

The pandemic forced a massive nationwide test of that theory, but it didn’t hold water because in many cases people were even more productive working at home. So you can’t put the genie back in the bottle.

Which advisory channels might be working remotely in the near future?

Independent advisors, smaller and midsize firms. And RIAs — they have lots of flexibility.

You’ll see all kinds of hybrids. Companies will try a variety of things because they have the technology to do that.

Not only will you see people working from home full or part time, you’ll see variations of that: Some companies will say, “Work from home whenever you feel like it, and come to the office whenever you feel like it.”

Some will allow advisors to switch their offices to different locations — even different states — for a change of pace and different scenery.

Some advisors will say, “It doesn’t matter where I am: I want to live in Key West! I can work from anywhere, and my clients don’t care because they’re working from anywhere [they desire] too.”

Some clients may not even want face-to-face meetings because they’re used to seeing their advisors on Zoom and are happy with that. So it’s a win-win.

What about the more traditional advisors? Will they make that sort of shift, too?

They’ll go back to the old way and won’t change. They want to return to in-person as quickly as they can.

Will the wirehouses allow FAs to work from home?

No. They have their processes and a way of doing business that’s worked for them. In general, I wouldn’t expect to see much change from wirehouses when it comes to working at home. They want to get people back in the office.

Do you think that, since the pandemic brought health and life span into sharp focus, advisors should recommend insurance as part of retirement plans?

You saw your own mortality and were more open to buying insurance in the pandemic. 

I’ve always felt that more advisors should sell insurance because it’s part of being a holistic [FA]. Why should there be one professional handling investments, another handling insurance, a different one handling loans and someone else handling your mortgage? All your financial assets and liabilities should be in the same place. 

I’ve felt that advisors should sell insurance because it’s part of a client’s financial life.

As Gen Y becomes more important to the economy, should advisors customize their approach to serve this younger demographic?

I think [the notion of] millennials needing different financial services is overblown. I don’t believe in generational targeting, that you deal with people of a certain age in a certain way. 

Yes, there are life events that occur, like marriage and having children, when [younger] people need particular services. But I believe that advisors should treat people as individuals. Personality assessments are a better way to [get insight] than just by age: Are they outgoing or introverted? Are they risk-takers or conservative? Those types of characteristics are much more important than just age.

There’s the realistic issue that most Gen Y’s don’t have very much money for investing. Should advisors acquire them as clients anyway for the assets they’ll accumulate in the future?

It’s a double-edged sword. Many advisors don’t have the tools or the capability to get these clients. Just because you offer a robo platform isn’t a [guarantee] they’ll come. 

Advisors don’t know how to market to people without money. They’re busy — so the best way to grow their business, they [reason], is with clients who are rich.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.