This week Rohit Vaswani (@ro_vaswani), Head of Adviser Distribution Relations at Platforum, shares some thoughts on the implications of Consumer 2.0
Change is constant and exponential. In the early stages of change one might not realise the extent of it. Nonetheless, embracing change early on is critical to ensure businesses stay relevant. Today I’m talking about changing consumer habits and will be looking beyond financial services to understand how consumer behaviour is evolving. That way the industry should be in a position to meet their needs (known and unknown) more effectively.
Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Consumer behaviours are changing across other industries and we must take note. If the public are to become taxi drivers, content writers, retailers and hoteliers could we expect them to become their own fund managers?
We are already seeing examples of the Uber/Airbnb model in financial services through ‘crowdfunding’ and P2P lending. Innovation is key and, as with Uber and Airbnb, early movers could gain traction challenging existing brands and business models that do not embrace this change (speak to hotel owners and ‘cabbies’!)
Looking a little bit closer to home, George Osborne’s pensions green paper this week referred to the Platforum UK D2C Guide and the increasing importance of giving consumer direct control over their investments. We have a great opportunity through auto enrolment to engage with existing customers. Customers are now more or less compelled to save for retirement – but that does not mean they are engaged. There’s a theory that an employee becomes engaged with their pension once the value of their pot exceeds their salary or their car. How do we get them there? Perhaps auto-escalation will help. At current low default levels of contributions, getting consumers engaged early on in their first jobs will be important to ensure that tomorrow’s pensioners have enough savings.
Financial services are still too complicated and hard for people to understand. Pricing structures remain opaque to the end investor. RDR has created the Ryanair pricing model in our industry where the consumer is paying for an investment, a platform and advice separately. Ultimately the investor wants to know the total cost of ownership rather than each line item. As we move from selling component parts to providing consumers with packaged investment solutions, price simplicity should be a core part of the customer proposition.
Talking about simplicity, we might want to rethink naming conventions. Does an investor actually know (or care) what a multi-asset fund, multi-manager fund or model portfolio actually mean? If we could align our naming conventions to things that customers want and understand, we might end up with a more engaged customer.
It is estimated that more than 4 out of 5 UK adults have a smartphone and that the proportion is set to increase to 9 out of 10 by 2017. Financial Services remains a largely non-digital industry and, with a growing mobile population, has to change.
Banks have now ramped up their digital presence and the likes of RBS have developed Apple Pay functionality and fingerprint recognition. On a phone. Now that’s very James Bond! Generation X consumers want to be able to manage their lives on their phones and so we need a completely new way of interacting with tomorrow’s investors. And to interact with them tomorrow, we must bring financial services into the new digital mobile age today.