Advisors that are less productive and those that offer fewer features than the competition tend to lose out on business. Here’s why keeping up with technology is imperative for financial advisors.

What Tech Will Do

Robo-advisors have raised the bar for financial advisors. In addition to cannibalizing potential clients, the technology is rapidly changing client expectations. A recent survey found that 80% of high net worth individuals under 40 years old would leave a firm that did not integrate new technology like the automated wealth management services provided by robos. Online portals and mobile access to financial accounts and services are quickly moving from a novelty to a necessity for clients, which means advisors ignoring them could be on the chopping block.

Many financial advisors feel that they have a lot of time to implement these solutions, but in reality, technology accelerates at exponential levels. In just three years, robo-advisor pioneer Wealthfront grew from $7.6 million to more than $2 billion in assets under management (AUM). Riskalyze, a risk alignment platform, has seen a very similar growth trajectory as an increasing number of advisors embrace tech designed to automate and improve upon tasks like assessing a client’s risk tolerance.

Technology may be costly to implement and time consuming to learn—and that discourages many financial advisors from deploying much-needed solutions. But headline costs aren’t a complete picture when factoring in things like cost savings and opportunity costs.

Most financial advisors charge around 1% of a client’s invested assets as a fee, which means that someone with $1 million in assets would pay $10,000 per year. With the vast majority of clients willing to leave a firm that’s lagging in technology, advisors risk losing tens of thousands of dollars per year in revenue by avoiding these investments. The technologies themselves often cost much less than opportunity costs and potential lost business without it.

Cost savings is another key area where technology shines. With the average financial advisor earning more than $80,000 per year according to U.S. News & World Report, is his or her time really best spent doing things that could be automated with a $10,000 software application? It’s time that could instead be spent on more impactful tasks that truly set an advisor apart from the competition.

Researching Tech in Advance

Planning in advance is the best way to mitigate the costs and learning curves uncertainties associated with technology. By comparing various technologies well ahead of implementation, advisors can ensure that they’re selecting the right tools for their needs at a reasonable price. Another benefit is being able to take the time to implement these solutions and properly train staff on how to use them rather than haphazardly throwing the systems into a live environment.

Some major areas to consider investing in include:

• Portfolio management and rebalancing
• Customer relationship management (CRM)
• Document management and compliance
• Online portals and mobile access
• Client risk assessments and onboarding

The Bottom Line

The financial advisor industry is becoming much more competitive thanks to the rise in technology. Enabling the ability to streamline operations and improve client services, these technologies have raised the bar for advisors in a number of ways. Advisors who aren’t investing in tech risk falling behind the curve and losing out on business.

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Following a solid year of significant investment in the industry, fintech could finally make its way into an even stronger growth pattern in 2016. Along with increased attention, the industry could see a large number of launches.

Over the past several months, a number of new platforms using algorithms for determining investment allocations have been launched. Big banks have also begun to experiment with blockchain technology for securing payments as well as releasing mobile-payment apps designed to make services easier.

Fintech Funding Booms

In recent years, funding for the fintech industry has boomed. In 2014, investors funneled more than $12 billion into fintech companies, an increase from less than $3 billion in 2012. During the first quarter of last year alone, this sector saw almost $3 billion in investments.

Over the course of the last 12 months, nearly $14 billion in funding has made its way into the coffers of fintech startups, representing an almost 46 percent year-over-year growth rate.

The fintech industry has experienced a steady increase in funding since 2010. Among the top categories receiving funding are cryptocurrency, payments, online lending, and personal financial management. In total, private equity firms and venture capital companies have invested approximately $50 billion in fintech companies over the past five years.

To be certain, the fintech sector has experienced a tremendous amount of growth since the first companies made their debut into this sector. Most of these companies began with the idea of taking a revolutionary approach to retail financial services. Once the financial crisis hit, the concept that regulated institutions, including banks, were vulnerable began to take hold. This naturally presented a tremendous opportunity within the financial sector. Entrepreneurs entered the scene with the idea of transforming everything from lending to payments to finance. Venture capitalists quickly took notice and started to fund new generations of fintech entrepreneurs and startups looking to change how finance was handled.

VC to Crowdfunding

In 2016, funding for the fintech sector is not expected to decrease, but funding could come from different sources in the future. An emerging trend shows that crowdfunding​ could actually outpace venture capital funding in the coming months. This is quite interesting considering that crowdfunding itself is considered a sector within the fintech market.

Fintech adoption could actually double in 2016, according to some reports. Urban consumers tend to use fintech services at a greater rate than any other population. On a global scale, consumers in Hong Kong represent the highest rate of fintech adoption and use. While the fintech industry as a whole is clearly on a path toward greater growth, the potential for the industry does vary based on product category. Research shows that payment services hold the highest rate of adoption at 17.6 percent. This category includes money transfers and the use of non-bank providers for paying for goods and services. The second-largest category is savings and investment, with a usage rate of 16.7 percent.

The Bottom Line

The significant amount of funding being invested in fintech startups serves to underscore precisely how much technology, particularly online technology, has dramatically changed financial services. From the way in which people decide how they will spend their money to the tools they use for making payments and investments, finance is experiencing an unprecedented level of change.

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New technologies such as Uber and Airbnb leave many buyers and sellers in the unknown without much precedence regarding insurance coverage. Users of these services are often left in dangerous territory when it comes to possible coverage gaps. Further, alongside the sharing economy platforms comes a new wave of technologies that need to be integrated into insurance policy (i.e. who’s to blame for an accident involving self-driving cars?).

Furthermore, with the rising costs of insurance, average consumers are increasingly demanding change or an alternative to the current system. Shortly, we will see new players come in to fill insurance coverage gaps, help consumers gain power, and provide innovative insurance products driven by technology.

An Industry Ripe For Disruption

The role of the entrepreneur is to find inefficient industries, capitalize on latent resources, solve problems and create something of value. When we look at the current insurance industry, we see inefficiency and a lack of comprehensive service within an overall outdated system.

The emergence of the sharing economy has disrupted almost every industry, from hotels to maid services to education. The insurance industry, which usually protects all other commercial exchanges; however, has been slow to adjust to such massive and widespread change.

The static nature of the insurance industry has left many sharing economy workers in the dark concerning coverage. Thus, an opportunity presents itself for newcomers to take the place of traditional insurance companies, or for the traditional insurance companies to adjust.

A prime example of an industry that has been under rapid transformation without the support of its insurance market is the auto-industry. Uber drivers used to be covered by their auto insurance when off the clock, switching over to Uber insurance while with a passenger, and left with no coverage in between. However, a new startup, Metromile, has created an innovative auto-insurance product based on a pay per mile policy.

Big names such as GEICO, USAA and MetLife are also now beginning to provide alternatives such as rideshare insurance. These types of deals also appeal to segments of the population who drive less than 10,000 miles a year. As we see a general trend towards less millennial car ownership and a push towards public or shared transportation, we’ll see platforms like these become even more relevant.

The Bottom Line

Apart from the highly controversial Affordable Care Act, close to nothing has changed in the insurance industry in decades. It’s an industry ripe for disruption with a lot of room for change in light of new technology such as sharing economy platforms, self-driving cars and the advent of big data. As traditional insurance leaves many consumers frustrated and desperately seeking new options, there’s no better time for insurance industry entrepreneurs to disrupt. Moving forward, we can expect a growing number of newcomers with platforms built on eliminating newly occurring coverage gaps, bolstering the power of the consumer, and offering alternative insurance products supported by cutting-edge tech.

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