When the Telecommunications Act of 1996 deregulated the telecom industry, executives at the old regional Bell companies faced a momentous decision. They could join the disruptors who began using fiber optic networks to provide phone service at a fraction of what it once cost, or they could try to fight the evolution of the industry by continuing to rely on their old copper networks and lobby for regulation that would block new players.
Some of the executives at the baby Bells tried to resist change. Those companies don’t exist anymore. Others acknowledged they’d invested in assets that became worthless overnight, embraced the future and evolved, providing services like internet bandwidth or piggybacking on the growth of tech companies like Apple and Samsung.
Financial advisors face a similar choice right now as technology transforms our industry. They can stay the course and take in whatever cash flow they can until their revenue streams dry up, or they can invest in the future of their business.
At Carson Institutional Alliance, we believe that leveraging both emerging technologies and those that don’t exist yet should be an important priority for every financial advisor. For every disruption, an equal or greater opportunity will emerge.
However, to make the most of these opportunities, wealth managers need to understand what the real disruptors to our field are. Many financial advisors think it is the Wealthfronts and Betterments of the world that could make us obsolete.
That’s not what’s going to get us. What will is blockchain—a technology most of us associate with bitcoin. It allows a digital ledger of transactions to be shared among a network of computers spread out around the world.
As blockchain emerges, it will totally change the way our society operates. We will all benefit from how efficiently it lets us share information, but it could wipe out millions of jobs.
In financial services, for instance, blockchain could easily eliminate services that many intermediaries, such as banks, are providing. Clearing could become a thing of the past. With many back office jobs destined to be eliminated by automation, Citi has predicted [1] that there could be a 30% reduction in retail banking jobs from 2015 to 2025.
Firms that don’t embrace blockchain are likely to fall behind. As Cognizant pointed out in a recent report [2], financial services firms that are digital leaders have a 139% advantage in generating revenue over those that are laggards. “More and more executives and line managers understand that optimizing an obsolete product, service, business strategy or process is a recipe for irrelevance,” the report’s authors wrote.
It isn’t only financial services that will be affected. In healthcare, blockchain will make it much easier to share medical records, reducing the need for middlemen to manage that data. The people who lose their jobs may be among your clients.
The energy business is similar. It has many middlemen whose jobs will be eliminated if energy can be bought and sold more efficiently using blockchain, with no loss to the energy grid.
Some wealth management firms have the ability to respond to changes of this magnitude on their own. They are equipped to create a whole new business model very quickly—and are already working on it.
But for many smaller firms, the best option will be to team up with a partner with the resource to keep pace. They can’t afford to build their own cutting-edge technology or can’t do so rapidly enough at a time when a month is equivalent to what a year used to be. At Carson Institutional Alliance, a partnership of select advisors, we have pooled our resources so we can respond quickly to changes like blockchain.
During the days when baby Bells dominated, few of us could picture a time when almost every adult had a mobile phone. Nonetheless, that day has come. Today, it is hard for our imaginations to grasp the opportunities on the other side of the blockchain equation, but it is only a matter of time before it transforms our industry in a similar way.
Are you prepared—or are you going to get sideswiped by the oncoming bus of change? The choice is yours to make now, while you still have time.
[1] Reference is on p. 12
[2] Reference is on p. 9
For advisor use only. Not intended for client distribution.
