For several years now, wealth advisors have been concerned about the rise of robo-advisors and the potential impact on the wealth management industry. There is a strong potential disruption from the new financial technology (or FinTech) start-ups, each with goals of becoming the “Uber” of peer-to-peer lending or the “Airbnb” of robo-advising.

 

When I talk to people in the industry about this movement, some are truly excited about it, others are quite worried, and others still have no idea what to do. 

 

When reading about FinTech, you start to get the idea that these new companies are about to subsume many of the core services and functionality provided by established financial services companies. The new FinTech companies are either lurking in the shadows preparing their onslaught against a bulwark of an established niche, or they are the outspoken challengers in a David and Goliath-like struggle. We are told the idea is to disrupt and bring more value to the consumer of financial services, and the efforts are fueled by the large amounts of capital, with investors looking for significant returns and comes packaged with the supposition of a degree of inevitability. 

 

 

Meanwhile, others might take the contrary view: that very few FinTech ideas and companies will survive and those that do will be subsumed by the established financial services companies. Take robo-advisors, for example. They have taken a very small piece of the investment management market, but you have to wonder “Can they take any more? Or is this their limit?” There are plenty of precedents for this in financial services; in particular, the online brokerage boom of the early 2000s comes to mind.

 

There’s also the notion that from the beginning, a FinTech company is a company looking to get bought. It finds its niche, and then it exploits the incumbent’s deficiencies and builds a better mousetrap. Everyone can see it is better, so the large company buys the smaller one. You also have lots of banks and financial institutions setting up incubators for the FinTech companies, offering prizes and financial compensation for up-and-coming companies to join them in these incubators in exchange for the ability to influence them in what they do—and, of course, have the option to use or buy the new technology once it has been developed. 

 

The financial services industry is, of course, not the only one facing disruption, and an attack on complacency is probably warranted. However, there are plenty of rabbit-holes amongst the potentially disruptive technologies and approaches. The current disruption is primarily affecting the lower end of the wealth market, as the ultra-wealth market is more about relationships than transactions, but it’s nevertheless an important trend for all members of the financial services industry to be mindful of and prepared for. The focus now should be on how, as a company, existing financial services are approaching the FinTech challenge: Like an Ostrich with its head in the sand? A headless chicken? Or a Cheetah waiting to pounce?