Creative Destruction!! Are You Ready?

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Published by Ron Carson

Joseph Schumpeter coined the idea of creative destruction in the 1940s. Despite many examples since then of innovators like Netflix crushing once-untouchable businesses like Blockbuster, much of the financial services industry still lives in denial of the threats we face from technological innovation.

Wealth management firms that hang their hats on asset management risk becoming the travel agencies of the future if they don’t adapt to the current marketplace. In an age of “roboadvisors,” asset management has become a commodity.

As Scott Ford and I discuss in our newly-released book The Sustainable Edge, today’s consumers want a completely different experience when working with a financial advisor than in the past. Our industry has hidden behind a lot of fees and expenses, but today’s investor wants more transparency. Offering this transparency 24/7 requires cutting-edge technology and a fresh outlook.

So what can financial advisors do to adapt? They have three potential routes.

Advisors who want to maintain boutique practices can invest in the technology they need, but this is going to take several years of catching up to the marketplace. It’s also expensive. Advisors will typically need to sacrifice the next three to four years’ worth of profits to pull it off.

Another option is to partner with a group that is already investing in the technology they need. Carson Group Partners, the network I founded for elite advisors, is one example. The wealth advisors who belong all have access to our advanced technology but they still own their practices and enjoy the freedoms that come with owning an independent business. I view Carson Group Partners as the Uber of our industry. It lets us all provide our clients with a better experience at lower cost.

The third option is to cash out. If you don’t want to invest in technology or team up with others who are doing so, you can sell your business and get some value for it now, before it dies on the vine. Make no mistake: If you ignore the threat of creative destruction and do nothing, you will be left with a business that ultimately has no value.

I don’t mean to paint a hopeless picture of our industry. I am actually very optimistic. What consumers want from their financial advisors is changing, but it is very possible for firms that are willing to adapt to provide it. By offering the transparency, technology and accessibility consumers want, advisors will be able to thrive in the future and attract future generations of customers.

Much of our business was built by fast-talking salesmen. It’s not going to be that way in the future. Financial advisory firms will have to reinvent themselves and be far more forthright to survive. Otherwise, they’ll just become another vivid example of Schumpeter’s theory in action. Are you ready for the challenge?

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