As much as I needle Online Financial Advisors (aka Robo-Advisors) for making missteps lately, I have to say one thing… online is coming to finance.
And to quote Brett King over at my new favorite blog, Bank 2.0:
I guess with a title like Branch Today, Gone Tomorrow it’s no surprise that a lot of people think I’m anti-branch. I’m not anti-branch, I just don’t drink from the branch kool-aid fountain that goes something like “if only we could find the right formula we’d reverse this trend of not visiting the branch and customers would flock back to our physical space”. I think most Bankers and Credit Union executives, instinctively feel there is a change in the importance of the ‘channel mix’, but as often as I hear questions about how quickly this is going to occur, I hear executives talking about how customers used to behave. “But don’t customers need to come into a branch for lending products; to talk to a loan officer about more complex products?” This is a legitimate question in the old world, but it’s light on today in respect to the facts, which don’t actually indicate the branch is central to lending.
The fastest growing lending institutions in the country right now aren’t the big banks, community banks or even credit unions. The fastest growing lenders certainly aren’t mortgage brokers. The fastest growing lenders in the United States at the moment are actually peer-to-peer (online) social networks, namely Prosper and Lending Club…
You really have to read the rest of his post, it’s brilliant. He lays out the entire roadmap. And if you didn’t know, former CEO and Chairman of Morgan Stanley, John Mack, just joined Lending Club’s board. He ain’t no dummy.
And, meanwhile, I’m going to tell you this right now, timestamp it, in 10 years the sales forces of the Wall Street banks are going to be MUCH smaller. Things are going to be headlong into looking very different. I could be wrong, but my finger-in-the-air number is about 30% smaller. Why? Technology, people. It’s going to level the playing field in about 5 more years. How? Well, I’m so glad you asked…
Right now the Wall Street banks are sitting on 80,000 branches. That’s a lot. And probably 70,000 too many. Ok, 40,000 too many? Even if it’s 20,000 too many, that’s still 25%.
I’ve been talking to commercial real estate people who are already hearing from brokers that if you buy something with a bank in it, get ready for them to try to negotiate only occupying the front-half of their leased space somewhere in the very near future. The front half. Can you imagine how much fun that’s going to be for the poor strip mall owners? And right now, those sunk costs for the banks, that are being tied up in real estate… they’re being spent by younger, faster companies building online business models with the latest infrastructure and open architecture. Banks have 56,000 employees. These new companies have 56 and are ready to hire, the best & the brightest.
I went to the SnapEngage website to check out their chat-client for my company to use. It’s beautiful. It works perfectly with our contact manager for record-keeping. And it’s smart. If it notices someone getting stuck on a page while visiting our website, it asks, very politely, if you’d like to chat with someone. None of that old school virtual assistant pop-up stuff, all clunky and awkward, annoying you on just about every page. This is very thoughtfully done.
I got stuck on their site, and Mike popped up & helped me. He was awesome. He actually redirected me to certain pages on their site by magically switching the screen to the places with the answers I needed. And he was warm, friendly, and easy-going. No pressure, no judgements that I was wearing flip-flops and jeans at the office. He was also located in the US, if that floats your boat. At least I think he was…
And you know what? I signed up for their service. Because SnapEngage gave me service, and it was the product I needed. And because I’d done a little bit of research beforehand, I was also able to make an educated decision. Especially with the last mile of Q&A I had with Mike. Bam. I wasn’t sold. I was coming to buy. Can I get an Amen?
In The Future, The Best Firms Won’t Find New Clients; The New Clients Will Find Them! ow.ly/avnZH
— MichaelKitces (@MichaelKitces) April 30, 2012
Here’s what almost everyone in the Robo-Advisor space is missing in this whole John Henry/Paul Bunyan debate in the great Forbes post by Mike Alfred of BrightScope. People should not be removed from finance.
Look at like this: we’ve got robots trading major percentages of the markets now. We’ve replaced our exchanges with computers to talk to the robots. And the money we spend on our iPhones and iPad is talking to other computers who are talking to the banks’ computers. We’re pretty darned efficient. Let’s forget just for a minute that Wall Street, is in the beginning stages of getting absolutely knee-capped by this technological shift. What happens when something inevitably goes wrong, or you don’t understand something? And, the answer isn’t on the FAQ section of the zen-like help desk…
Who do you call?
The point of technology is to be “the bicycle for the mind”, as Steve Jobs said.
You’ll move faster and further with less effort using technology, but you’ll notice someone’s mind is still involved in that masterful analogy. People are an important part of the financial world & investment/banking process. The, “reluctant father of all things i” used to be adamant about still doing some things in-person.
And here’s the thing, I’ve tried all of the online financial advice services who are marrying asset management. Almost all of them are lacking something. Even ours. Some are providing too much too soon, or not enough, some are clueless, some are chasing the wrong rabbit, some are playing the same games with a different wrapper. And all of them are being designed with some of the best technology people in the business. But you’ll notice something very telling. You’ll see it, occasionally, if you follow them on Twitter or the blogs they comment on. I definitely see the quiet admission on every online company’s site.
When push comes to shove, they all have a phone number & hours of operation somewhere on their site.
Why? When markets start to hemorrhage for days in a row again (have we forgotten already) I think I’ll want to do more than just send pop off an email to firstname.lastname@example.org to hold my virtual hand. This is my money, fool. You better pick up the phone. I want to talk to somebody. Right? And, any service that is striving to completely remove that from the financial world, is completely removed from reality. Especially if they’re dealing with the unsophisticated investor. That last mile rule is just in effect, whether it’s my $3,000 & certainly if it’s my $50,000,000. At least until my Google glass Siri assistant can tell me about something better. Ultimately people are the ones who are still supposed to save the day & still provide service. Otherwise the Apple Store in your mall would be full of Siri-enabled iPhones with credit card slots.
And even though the class of 1.0 and 2.0 Online Financial Advisor models are pushing online really hard, there’s going to be FA 3.0. And these firms are starting to figure out how to empower people in finance, advisors & clients alike, using technology more smartly than the legacy Wall Street firms. How to scale it properly and smartly. It won’t happen by gutting the entire value proposition of advice or people. It will happen by re-valuing a hybrid of the two, a better marriage of technology and people. People are not the problem. Technology alone is not the solution.
And when you combine the stark reality of the secular shift to online beginning with charts like the one above, and the greying of the entire industry (because who in their right mind would be doing this) you can bet that the smart ones are going to begin quickly swimming toward more electron-charged waters.
So, yeh — I’m thinking the next five are going to look a bit different. Actually, I’m betting on it.