More of a disruptive innovation than a revolutionBy Alain Castonguay | August 18 2016 09:22AM
Technology is central to our business strategy.
Robo-advice suppliers see their platforms as part of the technological shift in the industry. The biggest change is in consumers’ expectations, they argue.
At a Cercle finance du Québec discussion, An Tran, director, Québec, of Wealthsimple, said that her company’s platform marks a natural evolution of the industry. “The technologies we offer are not revolutionary. Portfolio rebalancing is already done automatically. It’s customers’ expectations that have changed,” she says.
For Michel Bernier, managing partner, Pivot Strategic Transformation, robo-advisor technology is not new. Instead, he calls it a “disruptive innovation” in the business model, as defined in 1997 by Clayton Christensen, of Harvard University. Robo-advisors offer a less sophisticated product than the competition. It is also accessible to a customer segment that is ill-served by the traditional products, Bernier explains.
This is precisely the strategy that Netflix initially adopted, by distributing movies at a lower cost than that charged by the distribution titans. The price gap between the robo-advisor and the competition is even greater than for movies, Bernier says. Consumers see an immediate gain, and the system is very transparent. It is too early to predict exponential growth, but the business model is clearly disrupted.
Offering an additional distribution channel
Financial institutions already use robo-advisors to promote some products and offer an additional distribution channel, like exchange traded funds (ETF), Bernier adds. Fund managers who must support large distribution networks certainly see the advent of robo-advisors as a threat, he adds.
Banks are in a critical phase, torn between wanting to protect their business model and the need to keep up with market trends. No one knows how willing investors will be to use robo-advisors, he continues. Other financial institutions will imitate Power Financial Corporation and invest in “fintech”, but most are still in “wait and see” mode, he says.
He has worked as a consultant in the aeronautics industry, an industry which is also questioning what lies ahead. “What will future cockpits look like? Maybe like this: There will be a pilot and a dog. The role of the pilot will be to feed the dog, and the role of the dog will be to make sure that the pilot doesn’t touch anything. I’m not telling you this joke to insult financial advisors,” he says. Robots can help advisors and financial institutions will benefit from them. For one, they can better assess the value of advice, he says.
A company that does not embrace innovation will quietly perish, Bernier adds. There must be parameters to follow, but innovation that creates value for the greatest number of people should be encouraged, he contends.