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Digital transformation has already happened across multiple industries—and financial advising has been slow to catch up. Digital transformation has already disrupted financial services—and contributed to the rise of FinTech. Banks are closing physical brick and mortar branches as more customers use mobile apps to access services or bank online. Who writes checks anymore? Who needs a physical bank to deposit them when you can snap a picture on your mobile phone? Consumers are turning to self-service technology to save money and invest directly using apps like Acorns, Stash, and Motif. So what exactly is digital transformation and what does it mean for retirement plan advisors? This introduction to the topic explores the implications of the digital business model for plan advisors.
Digital transformation defined
Digital transformation (DT) has become a buzzword. It’s a multifaceted concept defined as the application of digital capabilities to processes, products, and even financial assets (think Bitcoin), with the goals of improving operational efficiency, enhancing customer experience and value, managing risk, and discovering new opportunities for monetization. Based on this broad definition, it is clearly applicable to a wide range of businesses across many industries. One common example is in the public sector—many state and local governments are automating processes and moving transactions to the cloud, eliminating formerly lengthy wait times on the phone or in person with self-service portals. Instead of standing in line at the DMV, people can renew their registration or pay personal property taxes online—anytime, anywhere.
Another way to think of digital transformation is simply as the realignment of or new investment in technology and business models to more effectively engage people at every touch point in the customer experience lifecycle. In other words, digital transformation can be a way to avoid having your business disrupted by adapting to changing consumer expectations and giving clients a better, more personalized experience. Client touch points can be increasingly proactive rather than reactive; for example, an advisor could easily see that a client has experienced a new life event and then quickly reach out with information or an invitation to schedule a phone meeting.
A growing number of people now expect a digital experience from all their financial services. In fact, 56% of clients between the ages of 30-40 say that a comprehensive digital experience is highly important, according to a 2018 survey from Wealth Management magazine. And consumers are backing up their words with behavior. According to a 2017 PwC study, 46% of customers are skipping bank branches altogether, relying instead on smartphones, tablets, and other online applications. The study also reported that a direct-to-consumer insurer beat out traditional firms in a major customer satisfaction survey. And then there are millennials, who are well-known for preferring digital experiences, as the first generation to have grown up with readily available digital consumer technology.
Another example of DT is the trend of asset managers moving aggressively downmarket with advice. Technology is enabling a new level of service that was once offered only to affluent or mass affluent clients. Although robo-advising services have managed to capture only a small share of the market, roughly 1% of total AUM, a hybrid approach combining the power of algorithms with access to human advice is becoming more popular, and is expected to capture 10% of the market by 2025.
Of course, financial planning software is now an essential tool for every advisor. Projecting the long-term impact of different scenarios is necessary for any client to make a sound financial decision, and it’s far too complex to be done without the help of technology. Good software fills the gap by crunching the numbers to calculate projected outcomes, so that a client can evaluate the consequences of various financial choices.
What does digital transformation mean for retirement plan advisors?
Digital transformation is affecting client acquisition, management, and retention for retirement plan advisors, and business models are changing in response to new technological capabilities. According to, the two most common reasons advisors are willing to invest in upgrading their technology are to make their own workflows more efficient and to better serve their existing clients. Digital transformation can provide both these features by increasing a firm’s scalability, and also help to qualify potential new clients.
For example, financial wellness technology can scale advisor efficiency, and reach with configurable self-service portals, simple advisor-plan participant communication, calculators, and content. All of these can be used by existing clients and employees in 401(k) plans. Offerings like these can be a powerful differentiator for plan advisors looking to attract new plans and retain existing ones. According to Prudential, 82% of employers believe they can benefit from a financially secure workforce, and a majority are interested in providing financial wellness tools for their employees because it’s the right thing to do.
Financial wellness also provides the foundation that enables employees to manage their day-to-day finances so that they are able to contribute to their 401(k) plan—it’s impossible for people to save for retirement when they can’t meet their immediate financial needs. A key feature advisors should consider in evaluating a digital solution is the ability for clients to aggregate their accounts, both assets and liabilities, allowing the advisor and client to get a 360 degree view of the person’s financial situation together. Yet almost half of advisors don’t offer a client-facing online portal that shows clients their progress in meeting self-defined goals and managing monthly cashflow.
How the solution provides education is also key. Research has shown that education alone fails to change financial behavior. Education needs to meet people where they are by personalizing the content and offering it at the right time when a client is more likely to be interested and motivated to take action. A digital solution also offers the ability to track whether needed actions are being completed and send automatic reminders if they have not.
The chart below summarizes some of the key differences between the traditional business model and the advantages a digital business model provides.
Differences in the Traditional and Digital Business Models
Final Considerations
Most importantly, in considering new technology, advisors should take a holistic perspective by looking at their entire technology ecosystem, and asking, ‘How does this technology work together with what I already have?’ Many firms may have a patchwork quilt of legacy technology, and at a certain point it can make more sense to let go of the old and invest in a new solution that is more integrated. Bottom line, technology should enable the advisor’s business through making operations more efficient, scaling the advisor’s ability to serve clients while improving their experience, improving analytics, and identifying potential new sources of revenue. And one additional advantage of digital transformation to keep in mind relates to succession planning: a firm with a digital business model that has efficient processes and the ability to scale can command a higher acquisition value.
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