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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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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