A sea change in customers' trust in free or cheap online financial services spell disaster for the finance and wealth management industry, Forrester vice-president Bill Doyle reveals.
Start-ups like Jemstep, Personal Capital, and SigFig deliver free or low-cost guidance to help consumers navigate long-term goals such as investing for retirement or buying a home. Doyle's latest report warned that digital financial advice and wealth management businesses are finally ready for take-off and are a realistic threat to traditional enterprises that are not innovating.
The report, Disrupting finance: digital financial advice, from Forrester found one-third of affluent US online consumers believe cheap online financial advice is as good as in-person advice, a 22 percent increase from three years ago.
Doyle said: "Digital remains a dangerously low priority at wealth management firms that are built around person-to-person relationships."
Nutmeg, a site that builds and manages investment portfolios from the comfort of a customer's laptop was labelled as a serious threat.
"To prevent disruptors like Nutmeg and Rebalance IRA from opening an ever-wider digital experience gap, established firms need to transform their digital presence. How? Start by depicting account information like asset allocation visually and by showing portfolio performance."
"In a wealth management industry measured in trillions of dollars, digital investment managers are still tiny. But they are establishing a foothold in a managed accounts market that has been dominated by advisor-based brokerage firms such as Ameriprise and Raymond James, agent-based insurers such as AXA and New York Life, asset managers such as Legg Mason, and private banks such as UBS. Even traditionally direct firms like E-Trade and Scottrade should be worried about the disruptors'.
A younger generation of "digital natives" will opt for low-cost, technology savvy financial products and services, Doyle added.
One trick digital investment managers are using to hook customers and stimulate goal-oriented behaviour is gamification. Financial advice provider FlexScore draws users by grading financial health and pitting them against their peers, while offering steps to improve their score.
How to retaliate?
To avoid disruption, CTO and CIOs need to focus relentlessly on the needs of their customers so that they can give them more of what they want, faster than before.
Doyle said: "Compared with the new digital platforms, most major banking, brokerage, asset management, and retirement providers' tools feel dated and don't provide much actionable advice. Improving these tools won't be cheap or easy but smart firms will spend the money and time needed to translate the principles of effective person-to-person advice to digital channels."
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