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Posts Tagged ‘financial services’

An Important Lesson For Us All From The Royal Commission

 12th February 2019 by gihan

Last week, Kenneth Haynes, commissioner of Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, handed in his final report, which included 76 recommendations for reform.

It’s a wide-ranging report, affecting many businesses offering financial services, and it has caused much debate and discussion over the last two weeks. I don’t want to discuss the report in detail here, but it’s worth looking at one aspect of it, because it’s a warning sign for every business in every industry.

Let’s talk about one group that claims to have been unwittingly caught in the crossfire: mortgage brokers.

The mortgage broking industry is facing massive disruption.

One of the report’s recommendations is to change the way mortgage brokers charge fees. In a nutshell, instead of the current system of a broker charging the bank for bringing them the business, the Haynes report recommends they charge the customer instead. The idea is that this would eliminate any perceived conflict of interest, because brokers wouldn’t be influenced by the commissions they receive from the banks.

But many brokers claim this would destroy their business, because many customers simply wouldn’t pay a fee for this service (which they are currently getting for nothing).

I think they are probably right, and I have a lot of sympathy for their point of view. I have an excellent mortgage broker myself, and I know she has saved me thousands of dollars in fees and interest through her expertise. So I understand their point of view.

But the warning signs have been there for years.

I’ll explain …

This is one of the six kinds of disruption.

Broadly, there are six kinds of disruptive forces that could turn your business upside down:

  • Competitors: The traditional companies you’re currently fighting head to head for market share
  • Dominators: The “big guys in town” whose influence affects the entire industry
  • Start-ups: The new players in your industry, who operate with a lean, nimble, and agile approach
  • Upstarts: The start-ups who not only take on your industry, but aren’t bound by the same rules and regulations as everybody else
  • Randoms: Somebody from another industry entirely who disrupts your business without even trying to compete
  • Terminators: Businesses from a different industry who make your entire industry obsolete

This is an example of a Dominator.

A Royal Commission is an example of a Dominator because it affects everybody in an industry.

Sometimes the disruptions appears out of the blue, but more often the signs are there – if you’re willing to look for them.

For example, for the mortgage broking industry, it might look like these changes have come from nowhere as a result of the Royal Commission. But I wrote about precisely these changes in a blog post almost two years ago: What You Don’t Know WILL Hurt You – Disruption in the Mortgage Broking Industry. I wrote it because of another report released at the time – the Sedgwick Report – which recommended some of the very same changes the Royal Commission is recommending now.

Here’s an extract of what I wrote at the time:

“The dominators in the industry are the regulators and other government forces. They don’t compete directly with you, but they change the way you run your business – in ways that are generally outside your control …. The Sedgwick Report recommends changes to the way financial products are sold and offered – for example, replacing value-related commissions with a fee-for-service model … Last year, as part of the Financial System Inquiry (FSI), ASIC’s Review of Mortgage Broker Remuneration proposed other changes to the way brokers are remunerated – all in the name of increasing competition and improving consumer outcomes.”

As I said, the warning signs were there!

I’m not making any judgement here about whether the proposed changes are “fair”. As I said, I have a lot of sympathy for the broking industry’s point of view. But it doesn’t really matter what I think about it – these businesses probably will be disrupted.

It’s not easy for anybody to imagine major disruptive changes to their life – especially changes that fundamentally underpin their current business model. But it’s an important position to take – especially if you’re a leader in a fast-changing world.

Most importantly, look for the warning signs. It’s surprising how often they are there – if only you’re willing to look for them.

Thinking Ahead

Here are three questions you can ask to help you adopt this mindset:

  1. Which “assets” in your organisation could be liabilities because they are blinding you from other opportunities?
  2. What would happen if some fundamental part of your business model became illegal tomorrow?
  3. If a smart start-up company wanted to move into your industry, what would they do differently?

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Financial Advisers: Trends that will Shape the Profession in 2019

 15th January 2019 by gihan

It’s been a challenging year for many in the financial services industry, and you don’t need to be a futurist to see some of the immediate changes ahead, for example:

  • Increased monitoring and oversight from ASIC, backed by the Government
  • The end of the vertically integrated model
  • An acceleration of advisers leaving the industry

But what other changes can we expect, especially from trends and technology outside the industry? Let’s polish our crystal ball and look at what experts are predicting for the next few years.

In an article for the FPA’s magazine Money & Life, I wrote about three important trends, one over-hyped technology and three key skills for the future.

Read the article here.

You can also watch this video for a quick summary.

The Australian Fintech Landscape

 25th September 2018 by gihan

I’ve been doing a lot of work in the financial services industry recently, and it’s an area that has been facing a lot of disruption recently.

Of course, there’s the Financial Services Royal Commission, which is due to deliver an interim report at the end of this month. But even if you ignore that, the industry is facing competitive pressures from a purely commercial viewpoint.

And let’s not worry about blockchain and cryptocurrencies just yet. Too much hype for my liking, and not enough solid, practical evidence behind it.

Even putting aside these two headline-grabbing disruptors, the industry is still facing many others. One of the most dramatic illustrations of this is KPMG’s infographic showing the myriad fintech companies jostling with each other to displace established businesses in the industry.

The infographic shows disruptors in lending, crowdfunding, back office, data & analytics, insurance, personal finance, and more. It looks like this:

Download it here from the KPMG Website.

If you’re working in any area of financial services, it would be smart to understand some of these disruptors! They aren’t all risks or threats to your business; some of them could be the best opportunities.

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The Busy Adviser’s Secret to Lifelong Clients

 29th January 2018 by gihan

In a business environment where clients have more choices and information than ever before, keeping in touch with clients – and providing value – is not just about FoFA, the FSI, or compliance – it’s just good business.

Do your clients only hear from you when you send them a statement or invoice? If so, you can do more – much more – to show them that you’re a valued partner in planning their financial future. Focus on touchpoints that give them real value in a non-intrusive way.

Here are four things you could do regularly:

  1. DAILY: Do something nice.
  2. WEEKLY: Send a thank-you postcard.
  3. MONTHLY: Write a high-quality article.
  4. QUARTERLY: Run a client webinar.

Read the full article here

This is an extract from an article I published in Financial Planning, the magazine of the FPA for financial advisers in Australia.

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The #1 Skill to Future Proof Your Business

 28th December 2017 by gihan

I have TPD insurance with AIA. That’s no big deal, of course – thousands of Australians are insured with AIA. But an interesting feature of my AIA insurance is that I get a 10% discount on all my Qantas domestic flights. As a professional speaker who travels a lot, that is a big deal!

This is a win-win partnership: I get cheaper flights and AIA gets a loyal customer. But is there a loser? Yes! Think about the travel industry, where most travel agents struggle on margins far lower than 10%. And now they face competition not just from inside their industry, but from a completely unexpected sector.

More and more businesses are facing similar scenarios: Their biggest competitors (the “disrupters”, if you like) aren’t the traditional big players in their industry, but come from completely outside their industry.

Accenture’s Technology Vision 2016 survey of Australian CEOs reported that 86% of Australian businesses expect rapid or unprecedented technology change in the next three years. That’s not surprising, but it might surprise you that only 30% of them think the greatest risk comes from established competitors. Most expect – in fact, they know – the biggest changes will come from new players, including unexpected disruptions from other industries.

How can we possibly stay ahead of the changes that affect us?

The solution is to develop the skill of “transdisciplinarity” – one of the ten skills the Institute for the Future identified as key skills for the future workforce. In brief, transdisciplinarity involves applying ideas, knowledge and expertise across different disciplines and industries. In practical terms, it means you regularly look up from the narrow, highly-specialised focus of your day-to-day work and take a broader perspective.

Read the full article here

This is an extract from an article I published in Financial Planning, the magazine of the FPA.

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Forever Young – Life Extension Science

 21st December 2017 by gihan

In 2015, then-Treasurer Joe Hockey was ridiculed for suggesting that some children alive right now could live to 150. But experts in anti-ageing – or “life extension science”, as it’s known – support his claim. It’s a fascinating area of science, and one that has obvious implications for all areas of society.

Life extension science doesn’t claim to reverse the ageing process (for that, you need the cosmetics industry!), but to slow it down. That means you live longer, but age better; and the younger you are, the better the results.

The most optimistic experts in this area even suggest that eventually the science will become so good that people could live forever. Their logic is that the science is improving so rapidly that it will outpace the ageing process itself. It’s too late for me in my 50-year-old body to live forever, but possibly not for my 7-year-old niece. But even if she doesn’t live forever, I have no doubt she will live to 100 – and be at least as healthy and active as her 50-year-old uncle today.

It might sound far-fetched to imagine that 100 years from now, it will be normal to live a healthy, active life at the age of 150. But it would have been equally far-fetched for Australians 100 years ago – when the average life expectancy of a baby was about 50 – to imagine that so many people now live to 100.

Read the full article

This is an extract from my article in Money & Life, the FPA’s magazine for financial advisers in Australia.

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What You Don’t Know WILL Hurt You – Disruption in the Mortgage Broking Industry

 21st April 2017 by gihan

The release this week of the Sedgwick Report brings yet another major change to this fast-changing industry. If you’re a broker, you might despair because it places even tighter controls over your business, while at the same time you’re facing competition from other outside forces (such as online broking offers like uno).

If you think things are changing faster than ever before, you’re right! As one indication, the Financial Services Disruption Index, which measures changes in the small business lending sector, shows a jump in disruptive forces, led by increasing client awareness of alternatives to the traditional borrowing channels.

It’s easy to say your business – and the industry – is facing disruption, but what does that really mean? More importantly, what can you do about it?

Broadly, there are six kinds of disruptive forces that could turn your business upside down:

They don’t all affect you equally, but it pays to be aware of all of them, so you can adapt to them, embrace them, and perhaps even lead the change in the industry.

Let’s take a quick look at these disruptive forces – and examine how they might affect your business.

1. Competitors

Who are you currently fighting head to head for market share? These are the traditional “disruptors”– the existing competitors in your industry.

It’s easy to get distracted by the big changes from regulators and fintech startups, but don’t overlook your direct competitors. As the MFAA warned recently, a growing number of brokers and a slowdown in new loans mean it’s a crowded marketplace for brokers, and the broker market might be reaching saturation point.

2. Dominators

What happens to a corner store when Coles and Woolies move in? These are the dominators – the big businesses with the big budgets and deep pockets. When they move in to a market, they don’t just threaten you – they threaten all your competitors as well.

For example, in the USA, Google is moving in to the mortgage broking market, teaming up with online real estate database Zillow to sell home loans. Google is using one of its key strategic assets – the ability to store, sort and search vast amounts of information – to help borrowers compare home loans, and then connect with lenders.

Closer to home, the dominators in the industry are the regulators and other government forces. They don’t compete directly with you, but they change the way you run your business – in ways that are generally outside your control.

As noted earlier, the Sedgwick Report recommends changes to the way financial products are sold and offered – for example, replacing value-related commissions with a fee-for-service model. Already, the Big Four banks have promised to implement this recommendation (and all others).

It’s not the first – and won’t be the last – change of its kind. For example, last year, as part of the Financial System Inquiry (FSI), ASIC’s Review of Mortgage Broker Remuneration proposed other changes to the way brokers are remunerated – all in the name of increasing competition and improving consumer outcomes.

3. Start-ups

At the other end of the scale are the start-ups – the new players in your industry. They don’t have your experience, resources, and existing market share, but they also don’t have your baggage and sunk costs, so they can operate with a lean, nimble, and agile approach.

Accenture reports that one-quarter of Australian executives expect the greatest risk of disruption from this kind of competition.

Mortgage brokers – like any businesses with the words “agent” or “broker” in their name – are particularly vulnerable. Many have relied in the past on being gatekeepers to valuable information about lenders, but that information is now more readily available, so it’s easy for borrowers – and lenders – to bypass the broker.

That’s why startup platforms like uno – which bypasses the traditional mortgage broker to connect borrowers to lenders – can disrupt the industry. It’s also why big banks are so willing to invest in them (Westpac alone has invested $16.5 million in uno).

Keep in mind that your customers and clients are rapidly adopting new technology and business practices – which leads to higher expectations. When people can book a flight, call up an Uber, order restaurant food delivery, and more – all from a few clicks on their smartphone – why should they have to wait 29 hours for a lender to process a loan?

It’s not always easy to predict the start-ups in your industry, because you don’t know from where they will spring up. However, you can prepare by acting more like a start-up yourself, always asking the question, “If we were starting from scratch, is this the way we would do it?”

4. Upstarts

What if a competitor doesn’t play by the rules? These are the upstarts – competitors from outside your current space who aren’t bound by the same rules and regulations as everybody else.

Globally, KPMG reports that two-thirds of CEOs are concerned by new entrants disrupting their business models.

Upstarts can make a dent in even highly-regulated industries (as Uber and Airbnb have shown). In fact, in mortgage broking, it doesn’t even mean breaking the rules. ASIC’s Review of Mortgage Broker Remuneration report points out that mortgage referrers such as real estate agents and developers earn almost as much in commission as brokers, despite doing much less work.

5. Randoms

As difficult as it can be to compete against an upstart, it’s even more difficult when you’re blindsided by a random – somebody from outside your industry who disrupts your business without even trying to compete.

For example, the Turnbull Government’s recent announcement to abolish the 457 skilled worker visa will affect some in the mortgage broker industry. It creates barriers for bringing expertise and skills into Australia, but is powerless to block the passport-less, visa-less, connected online world. That gives you an advantage if you’re already outsourcing, offshoring, crowdsourcing, or using other similar ways to engage talent from everywhere. If you’re not, there’s a danger you will fall even further behind.

6. Terminators

Finally, how will you cope with the terminators – the businesses that don’t directly compete with you, but make your industry obsolete?

The mortgage broking industry relies on home loans, which in turn piggyback on the need for property purchases. But what if this need changes?

Of course, housing affordability is a hot topic now, but that’s just one pressure point on the property market. Other emerging technologies and trends could also affect it – for example:

  • Gen Y’s (Millennials) and Gen Z’s don’t necessarily want to be saddled with 25-30 year home loans.
  • Companies like Kasita in the USA and Heijmans ONE in The Netherlands sell movable homes, which let owners move across the country without having to buy and sell property.
  • Driverless cars will make travel faster and easier, reducing the need for people to move house as often.

Some of these trends will take time to take hold, let alone become mainstream. But they should still figure in the strategic planning for your future.

What will YOU do differently?

The first three forces – competitors, dominators, and even start-ups – might already factor in to your strategic planning, because they are more visible and “in your face”. But it’s the other three – upstarts, randoms, and terminators – that could cause more damage, because they are hidden and have greater potential impact.

Don’t ignore any of them! Smart leaders and business owners use all six in their strategic planning.

It’s tempting to put this aside because you’re too busy coping with the deluge of changes right now. But that’s risky, because you’ll never have the luxury of time. Address them now – and plan for them in your future.

To quote Ernest Hemingway from his novel The Sun Also Rises:

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.”

Don’t wait for sudden death! Act now.

Future Proof Your Strategy

For more about aligning your business strategy with future trends, download my free white paper Future Proof.

Discover how to identify the six disruptive forces that could turn your business upside down, align your business strategy with them, and find opportunities to leverage them for greater success.

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Financial Services Firms:Staying Ahead of the Game In Our Fast, Flat and Free World

 2nd March 2015 by gihan

Financial services firms in Australia continue to face uncertainty through government regulation (FoFA and FSI), market conditions, increasing competition, and online services. Smart practices who see opportunity in this volatile environment can stand out from the rest, embrace change and innovation, and stay ahead of the game.

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