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How to be like Amazon, not Sears

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The sad decline of America’s once great national retail giant is a warning of times to come for any firm who is incapable or unwilling to recognize the ground shifting beneath them.

The correlation to Sears’ story is strong in our industry. Like lagging retail giants, firms risk ruin by failing to recognize the change in customer expectations or by squandering the opportunity to evolve their business model.

Like Sears, there will be established firms that will not survive. Their demise may happen slowly, but for many, it will happen. So how can you tell whether your firm is a Sears or an Amazon and what actions can you take to end up on the right side of history?

Wealth management firms face long accumulating and well-documented challenges. A looming wealth transfer, an aging advisor population, commoditization of portfolio management and fee compression are massive obstacles. Over the last two years, the industry fretted about the inevitable doom that robo advisors were going to bring. While sweeping disruption never completely materialized, there is still a serious lack of strategy and conviction needed to face challenges to the current wealth business model.

I’ve had the opportunity to engage deeply with many firms on the topic of innovation. Recently, I have been amazed at the divergent answers to this simple question: How do you plan on innovating?

Responses I've heard include: ‘Acquire innovative companies (and hope that change is contagious).' Another is, ‘We plan to eliminate redundant systems and invest the savings.' A recurring answer is, ‘We’re building an innovation lab and learning from successful software companies.' None of these responses are wrong and it is truly one of the hardest questions facing our industry today.

The most successful client transformations I’ve witnessed start with an inward focus:

  • What is special and unique about your firm that constitutes an unfair market or client service advantage?
  • Why do your clients continue to work with you and what is it about you that entices new clients to come?

Without knowing the answers to these questions, any innovation project will just be about chasing a fad. Innovation is not about new technology and improved user experience. It’s about becoming a better, more client-focused version of yourself. It’s also about focusing on the unique and unfair advantages you have as a company and using technology as a springboard to new services, happier clients and better margins.

Secondly, each firm must consciously make the decision to take up the challenge. This is one of the largest stumbling blocks that tripped up Sears. Sadly, we still see many executive strategy sessions which proudly admit, ‘We are not a technology firm!’ Other visionary statements include, ‘We are culturally cautious about trends and fads!’ or ‘We are taking a wait-and-see approach!’

Undoubtedly, these are good short-term approaches. Where they fail the organization long-term is in the conscious commitment to being faster, smarter and ready to change when the time comes. Firms that lag and follow are not building the internal strength and muscle memory to take on the digital challenges of the next decade. The short-term frugality becomes a long-term handicap or worse: a terminal diagnosis.

'Innovation is not about new technology and improved user experience. It’s about becoming a better, more client-focused version of yourself.'

For firms that are leaning forward and committed to being more innovative, leaner and customer-focused, many have begun to set up innovation labs. Still others have begun to radically rethink how technology is funded and deployed, dropping some annual funding cycles in favor of a more venture capital approach. This allows them to conduct a monthly review of spending then phase-gate additional capital only when continued investment makes sense.

Firms that take this approach can act rapidly, test new technologies and have a better sense of how disruption will impact their organization. In the near future, we predict even more innovative financing approaches like those done through Google Ventures, where employees or vendors are encouraged to run with ideas outside the firm. The new company gets an anchor client while the parent company shares in the success of the broader market.

Are you willing to commit to long-term transformation and risk placing bets on a new paradigm as a firm? Firms like BlackRock, Goldman Sachs and Schwab have publicly (and loudly) said ‘Yes.'

If your firm's answer is ‘No,' ‘Not yet,’ or ‘We’re not sure,' then you have to consider what this will mean in the long run.

If your answer is, ‘We’re not sure’, all is not lost. Like Sears, many large US banks remain solidly focused on innovation from within the rigid structures of their past. Spending an additional 5% on technology projects doesn’t count as ‘innovation.’ Likewise, setting up an innovation lab without fully understanding how the company (and its clients) will benefit doesn’t count either.

In our innovation-starved industry, too many firms are overly in tune to efficiency ratios where technology spend comes at a cost to shareholder value. Like Sears, they are making short-term decisions which will have huge long-term consequences.

The prolonged impact of this approach is already evident in many of these firms where technical debt, outdated tools, manual and paper-based processes are growing pain points for their customers. Their advisors are also left empty-handed without automated portfolio construction and rebalancing, self-service client portals, paperless digital onboarding and modern AI tools that make them more efficient. Clients and advisors have increasing choice to take their business elsewhere and more efficient and digitally-focused firms stand ready to take them on.

For firms looking to regain lost competitive ground and interested in being increasingly competitive in the future, there are steps to take:

  • Build a culture of innovation: Innovation labs are an excellent way to kick this off. By establishing a place and value to entertaining new and unproven ideas, it puts your entire firm on notice that times are changing. Truly great firms use the lab to seed innovation from within the firm, ensuring that employees from all disciplines and seniority participate in lab projects. This participation imbues the organization in a lexicon of ‘What is possible?’ and can help break down the legacy walls keeping ideas from becoming reality.
  • Stop micro-managing technology expense: Empowered employees can make tremendous contributions to the firm. From our experience, obvious cost-saves and efficiency efforts often go unnoticed because any change requires a project and projects (psychologically) cost money. Incentivizing and green lighting projects that have obvious ROI is a start. Ensuring that technology teams always have sufficient time and resources to do the right thing is even better. Leaders have to stop trying to get $4 million worth of projects out of a $2 million budget.
  • Change the political structure: If you don’t have technology leaders that understand your business and can actively participate in business strategy discussions, start shopping for some. If you don’t have operations and advisory leaders that can interface directly with technology staff, start training them to do so. As demand for faster innovation and better client/advisor experiences increases, firms that can convert idea to action quicker will win. There will be no room for the tech/business divide and the lines that separate these groups must disappear.

Taking these initial steps will help turn your organization toward the future and enable it to act faster and with higher conviction on needed changes. The benefits of this change are immense — happier clients; happier advisors; compliance-friendly infrastructure; less overhead and a greater ability to scale.

However, the most rewarding aspect of taking this turn is the lift each firm receives from reconnecting with its core mission and recasting that mission into a future with purpose and pride.

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