Over the past two decades, the world has begun its transition into the information/digital age. However, the progression has been uneven, and the world of computers are still far more integrated in some industries and professions than others. The pace of change is accelerating, though, and in the coming decade, it will be time for financial planning to enter the digital age, driven in large part by major demographic shifts, as more and more of Generation Y become the newest clients and newest staff members in firms that will increasingly be led not by baby boomers operating their traditional model, but by the more technology-inclined Generation X. And in this future world, where people are connected by so many means, geography itself is less and less relevant; employees can work for employers, and clients can engage planners, even if they are a thousand miles apart, when it's a digital, virtual world. As the importance of geography declines with the transition to the digital age, three key aspects of financial planning - practice management, marketing and business development, and the actual delivery of financial planning services - will be dramatically altered.
The inspiration for today's blog post is some work I've been doing in recent months trying to vision how financial planning will change in the coming decade. One of my greatest inspirations has been some of the concepts put forth by author Thomas Friedman in his book "The World Is Flat" - which looked at how business and the world has changed through the late 1990s and the early 2000s as a part of the digital revolution. The basic theme of Friedman's book is that with the rise of technology and connectivity, globalization is making the world "flat" and breaking down the impact of distance and geography. No longer are India and China on "the other side of the Earth" from the US; they're all part of one flat, interconnected world of globalized business. As a result, companies do business with those they wish to do business with for any host of reasons... but geography itself, once a dominating factor, is less and less relevant.
The Future Of Financial Planning In The Digital Age
In the financial planning context, the idea that a digital world could render geography largely irrelevant dramatically alters the landscape. For example...
- Practice Management. The trend towards operational outsourcing in financial planning as a practice management tool is just beginning. As financial services moves paperless, key forms are completed via e-signature, and the availability of email, video, and messaging tools continues to improve, there will be less and less need for staff members to be physically present in the office. This will be especially valuable to the smaller start-up firm, which will have the capability to pay for exactly the amount of staff time needed to support key functions. This represents a dramatic improvement over the typical growth process for young firms, which swing from feast to famine as business owners get overwhelmed in operational minutiae, until they hire a staff member, who actually has more time than is needed to fill the job until the firm grows further; in the meantime, the firm owner feels pressure to go out and grow the firm more aggressively to make up for the significant personal pay cut that occurred as a result of hiring. In the digital world, dedicated staffing firms lease time as needed to firms that need it, who pay for exactly what they utilize, no more and no less... and get a highly experienced and trained staff member to boot. Even larger planning firms will have the opportunity to be more selective about which staff functions they fulfill with personnel hiring, versus outsourcing, allowing them to focus more on the core value proposition they deliver, and a value proposition for mega firms may be the virtual staff they make available for new advisors to utilize.
- Marketing and Business Development. In a digital world, planners do not have to rely solely on face-to-face interaction and in-person relationships to develop business. Instead, planners can make their skills and capabilities known, and help clients find them. In fact, from the reverse perspective, clients will no longer search for a planner who is best in their geographic area; instead, they will search for the planner who is best able to meet their individual needs. As a result, growing a practice shifts from outbound marketing to inbound marketing, a process especially conducive to niche marketing approaches that excel in a world where anyone in the country who happens to fit the planner's niche can become a client. On the plus side, this will allow many planner firms to grow more effectively, because the firms are no longer constrained to clients in their geographic area. On the minus side, firms that are not especially well differentiated and rely primarily on the fact that they are the "only" firm in the area that does what they do will struggle greatly.
- Delivery of Financial Planning. We are still on just the cusp of truly integrating technology into the delivery of financial planning services. In the future, the client's financial plan will live in the cloud; it will be accessible from anywhere, on any number of different devices; it will update continuously from currently available information, automatically sending alerts to the client and the planner when a problem arises or a goal is achieved. Planning will simultaneously become more automated and more proactive. In turn, this will shift the role of the planner to be more than ever the navigator to help the client chart a course to succeed in the financial journey, and the wise counselor who provides advice and wisdom along the way; the planner will simultaneously become both more consultative and interactive, yet with fewer in-person meetings and less physically present (as face-to-face is simply less necessary in a world where communication happens by so many different means). The face-to-face meeting will not vanish completely, but it will simply become one possible communication modality, rather than the anchor of the planning experience.
These trends will continue slowly but steadily in the coming years, accelerating in the second half of the decade as an increasing portion of Generation Y enters the workforce, begins to save and invest, starts a family, and becomes a consumer of financial services - not to mention the newest employees of most planning firms! - while at the same time baby boomers increasingly depart the financial services industry and transition their businesses to Generation X leadership that is far more inclined and willing to integrate technology. When the digital revolution intersects with the generational transition, the pace of change in financial planning will rapidly accelerate.
So what do you think? Have you seen any of these trends already underway in your practice or with your client interactions? Are you outsourcing more than you used to? Has the digital world changed your marketing? Are any parts of your financial planning delivery becoming more virtual? Are you prepared for these changes in your planning firm?
Bobbie Munroe says
Great article Michael. I was at the T3 conference (tech for advisors) last week because we hope to be a completely virtual office by the end of this summer. This will allow the 3 of us to work from n. Florida, Atlanta, and then even Utah without missing a beat AND as a team. It is interesting to see the reaction of my Atlanta clients (a third of my clients are already at a distance…mostly younger and tech savvy). I think I might even see them more often as my time in Atlanta will be targeted more intensely on client meetings. The adventure continues.
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Alex Murguia says
I agree. I also think there could be some wrinkles along the lines of what companies like Innocentive are doing
Sophia Bera says
I loved this post! At LearnVest I’ll be a Financial Planner to hundreds of people all over the country and I can’t wait! The company is based in NY and I’ll be working remotely from Minnesota. One of the first questions Boomers ask me is, “where will I conduct meetings?”. Then I tell them that I’ll never actually meet my clients face to face and I get a skeptical look, like, “how is that possible?” But when I tell Gen X/Yers about what I’m doing, they think it sounds great! They aren’t discouraged by the lack of facetime, but more encouraged that LearnVest is making financial planning more affordable and accessible. To me, that’s what’s important. My mission in life is to bring financial planning to Gen Y to empower my generation. I think that modern technology is finally making that possible.
Kevin Condon says
I think you and Friedman are wrong about geography. Your biases may be because of your locations. Remarkable, yet true, human beings gain a lot from asking the question, “Where are you?”. It is more than a climate and topography check. It is a cultural value. To make it simple, someone from Alabama doesn’t want to get advice from a Yankee! Someone from the Midwest won’t feel comfortable talking to a San Franciscan. We have to establish trust before we can give advice. Texans are more likely to trust other Texans, Iowans trust Iowans. Remember the New Yorker’s view of the world map from awhile back? It showed the Hudson River, a ridge, then Kansas on the horizon. Macrobiotics says don’t eat stuff that doesn’t grow in your region. The cultural corollary is, don’t trust anyone out of your area about money.
The web is a little behind in this regard. Social networking tools allow you to include your geography on Facebook, Twitter and Linkedin. That will help advisors in the present regulatory environment which recognizes state lines in licensing as inviolable, of course.
The proper use of the web to prospect and to network is to include the brand that is you, including your place, and that will help you to build your communities faster. Examples where geography is used to advantage in our profession? DeDe Jones, Bobbie Munroe, Troy Jones, Karen and Lou Altfest, Richie Lee, Tim Kochis, John Buerger, Jack White. From mountains to cornpone to Texas twang to San Francisco sophistication and back. The point is clear.
In summary, unless your blinders have lead you to believe that everyone shares your cultural milieu (e.g., East coast elites in Friedman’s case), you have to add geography to the mix to get trust faster. Globally, the case is even stronger. Tech support from Delhi comes to mind.
Michael Kitces says
In point of fact, I’m a strong believer that virtual financial planning will not likely cross oceans or country borders anytime soon, for the exact reasons you article – because the cultural divide is just too wide. This is why, for example, US tax returns can be outsourced to India (which ultimately is rote application of the tax code rules), but US financial planning probably cannot (outside of, again, perhaps some rote application of basic financial planning software and analysis).
However, I’m not convinced that our intra-country differences in the US are insurmountable. Yes, perhaps someone from north Texas won’t feel comfortable talking to a planner from downtown San Francisco because of the cultural differences, but that Texas client might still readily identify with planners from elsewhere in Texas (which itself covers nearly 1,000 miles), or other “midwest” states from Oklahoma and Kansas to North Dakota and Minnesota.
In point of fact, most planners can’t even work with everyone within 2 square miles of their office because of personality and cultural differences. But that doesn’t change the fact that there are certainly a wide swath of clients several hundred or thousand miles away who might be a great fit.
As a basic example: if the planner from South Dakota is “merely” constrained to working with clients from the midwest, that’s still tens of millions more prospective clients than are available just working with those in the greater Sioux Falls metropolitan area!
It is an overgeneralization of my point in this post to imply that because geography is breaking down, any two human beings on the globe can have a deep meaningful financial planning relationship. That is not what I have said. However, if the prospective client goes from two planners in their city to 20 planners across several states, the choices – and competition – have still expanded by ten-fold.
Kevin Condon says
I think we have the same view, actually. Cultural geography matters and won’t vanish. Sense of place adds a lot to the comfort that creates trust. Technology will save time and reduce costs, and much of what it does will increase the number of choices that consumers have in finding and using an advisor. For this reason, some of us, though learning to live in the cloud, should be careful to give cultural clues and geographic markers to comfort those we reach out to from there. 😉
Walter Cruz says
What FinTech startup would you like to see Incubated? What about a different sector?