Predicting the future is hard and mostly futile. Yet, when it comes to retail financial services, the industry seems so stuck in the past, that imagining its future is somewhat easier.
By understanding the fundamental changes that other industries have gone through, it becomes possible to paint a mental picture of where financial services could be going.
And this is best done with an analogy.
When I was a teenager, in my parents’ “wisdom”, they decided that the family would drive all the way from Durban, South Africa to Nairobi, Kenya. What made this an even wiser decision is that we would do this in a 30-year-old series 2 Land Rover.
This was a journey of approximately 5 000km with a driving time of around 75 to 100 hours. Needless to say, 20 years ago a trip like this took some planning. I distinctly remember my dad ordering a stack of those impossible-to-fold-again AA road maps which covered all the regions through which we were planning to drive.
Whenever I tell people about this trip, the most common response is the wonder at “what an experience it must have been”. It was indeed an experience. Many good memories, some less so. But as a uniquely nerdy individual in my family with a mild need for predictability – one distinct experience I recall is frustration with the trip itself.
Each day when we set out my parents would tell us the desired destination for the day and I would immediately dive into the maps, add up the distance, assess the conditions, adjust for assumed average speed, and start figuring out at what time we would arrive at certain points. Needless to say, this is Africa – and predictability and Africa don’t know each other.
For example, when we hit Lake Malawi (beautiful, by the way) our maps and journey pointed us on the road due north running parallel to the lake. What the map didn’t tell me was that the road on the map was used in the most ironic sense.
Averaging speeds of sub-20km/h to avoid potholes, donkeys, near death, small children and other traffic really screwed with my internal navigation plans and for two days in a row we never made our desired destination.
Needless to say, this is Africa – and predictability and Africa don’t know each other.
For decades, just like my Kenya road trip, people would make use of a conventional map to plot an unfamiliar journey. They would have to interpret the map themselves and make an educated guess as to what the best route might be.
As useful as maps are as a tool (and they’re certainly better than nothing), they do little to influence the outcome of the journey, and they did nothing to help people optimise their routes and remove uncertainty and unpredictability from a trip.
If you get yourself lost, choose the wrong route or misinterpret the information on your map – that’s all your problem. Heavy traffic, car accidents, speeding cameras, road works and detours are all things which can make a journey complicated and frustrating – even with a map in hand. The map cares little about your destination, agenda or desired outcome. It is simply a tool and it’s up to the user to use the tool effectively.
Fast forward to 2019, and the entire process of navigation has changed completely. Now, smartphone-based navigation can not only determine the route for you ahead of your journey, and talk you through every turn on the way – it can also adjust the route during the journey itself in response to new information available in real-time.
Google Maps warns you of incoming traffic problems and frequently plots unusual routes to avoid the heaviest traffic (something one would never be able to do without local knowledge, even with a map). Street views help you to find the exact location of what you are looking for, and modern navigation has an uncanny ability to predict your arrival time down to the nearest minute.
A final observation of maps versus navigation is where the navigation places the user. Visually, when using Google Maps, you will notice that your route and way forward is centred around you, the user. The visual map configures itself around where you are now and the direction you are facing.
Conversely, with a conventional paper map – you may find yourself anywhere on the map. In fact, you may currently find yourself right in the corner of the map. The map doesn’t care. Where a user is placed on a map, or how the map is being used by the user is a completely separate consideration of the map itself.
The map remains an essential part of modern-day navigation, but it is simply one of the embedded tools which make navigation so much easier and more effective today.
When it comes to retail financial services, I believe we are still at the level of the map. Certainly not useless, but nowhere near as effective as we could or should be. Financial services companies sell a variety of different products, yet each product is positioned as an end in itself, rather than a tool for a customer to use in their financial journey.
This is best illustrated with some examples.
Life insurance products are crucial tools for personal financial management. Yet the product cares little about the client’s end goals, aspirations or financial journey ahead. The product doesn’t anticipate that things change and needs change.
Things are worse with retail investment propositions. We get enamoured with costs and investment returns; but what good are low costs or high returns if the investment itself is not delivering the outcome the client is seeking?
Like with the map, the user of financial products is largely on their own in plotting their financial journey. If you use the products incorrectly – your problem. If you don’t have the right products or right amounts – your problem. If you don’t get the outcome you wanted from the start – that’s right, your problem.
For those that can afford it, meeting with a financial advisor is similar to meeting with an expert on maps who can help you plan and plot a route for you (on a map). Yet life is unpredictable. The equivalent of traffic jams, detours, car accidents and road works are definitely going to happen to you as you go on your financial journey, and you will quickly find that the plan you had when you started out becomes redundant over time. As the saying goes, “We plan, God laughs!”
In many cases, unlike with navigation – when you’re lost on your financial journey you may not even realise it until it is far too late. The feedback loops are far slower and in most cases not visible to those who don’t know what to look for.
What this means for many people is that they never find the destination they were setting out for when they started their journey. And when they reach the end and are not where they wanted to be, it comes as a huge surprise to them. They then realise, close to the end, that they need to travel at supersonic speed and make significant adjustments if they want to reach their planned destination at all.
There are certainly people who have and do manage to navigate the complexities of a financial journey, but you will find that these people become experts in the journey itself and dedicated time, discipline and attention to their journey. They are navigators, in the truest sense of the word. Yet these people are the minority, and the statistics bear this out.
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