Sector must evolve or face extinction


By Julie May

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The financial planning industry, both locally and abroad, was destined for extinction if it did not develop practical solutions to the impending “digital tsunami”, according to an industry white paper released yesterday.

The white paper, “Adapt or Die, The Impending Digital Tsunami”, produced by Pharos Financial Group in conjunction with its wholly owned Madison advice business, argued financial advice practices that did not embrace growing digital developments would become irrelevant and be left behind.

Madison general manager Giulio Russo said impending digital disruption held great possibilities for practices that were able to adapt, but it was also increasingly threatening to those that were not.

“This is not a new phenomenon. It has been happening in other industries over the past three decades,” Russo said, pointing to examples such as Kodak, large franchise music stores and book chains that had lost their physical competitive presence as a result of digital disruption.

“The fact is digital disruption is already taking place in the financial services space [and] if we don’t adapt to the needs of the growing number of people embracing and expecting to have access to digital solutions, our industry will be left behind,” he said.

The developments of the past two decades revealed the financial planning industry was well down the digital path, he said.

“Since 1987, the use of algorithmic stock-trading engines has increased to the point where they are responsible for 75 per cent of all trades in the US,” he said, adding ATMs had decimated teller numbers there as well as at home.

It was also possible cryptocurrencies, such as bitcoin, would pose a threat to payment processors, tax collectors and foreign exchange traders in the near future, he said.

He emphasised the point that there was very little about the financial services industry that was not digitisable.

“The [Pharos/Madison] white paper is clear that we are nearing a perfect storm where a number of cells are coming together and are about to hit concurrently,” he said.

“These cells are artificial intelligence and robotics, growing social media use, globalisation, connectivity and mobile, power and storage and big data.”

While the “tsunami” would be technology enabled, it would be consumer led, he said.

“Consumer behavioural change is about to rock our traditional delegated advice model and the way we do business to its core,” he said.

Research showed consumers of financial services products were increasing through digital services, but their interaction with an adviser through digital means remained at a low level, he said.

“A number of global, forward-thinking firms are already developing specialised automated algorithm‐based services that are meeting the specific needs of clients who come to them,” he said.

“These are the organisations that are adapting and meeting consumer needs and we need to learn the valuable lessons that they are offering us.”

The white paper aimed to start a conversation about the challenges and ways to adapt to them, while embracing compliance regimes concurrently, he said.

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