For financial advisors tracking the growing competition from consumer finance apps, here’s a roundup of seven free personal finance apps and a fuller explanation of why these types of apps pose a hidden competitive threat to advisors serving the mass affluent.
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These types of financial management apps present a growing competitive threat to advisors.
Paradoxically, since these consumer apps target a market that investment advisors do not seek to serve, they don’t show up on your radar as competitors. They're hidden competitors.
Users of consumer financial apps are not your clients. They're 30- to 40-year-old doctors, real estate investors, software millionaires, and rising stars of tomorrow.
You are not currently focused serving this group because they probably could not meet your minimum of $500,000 or even $250,000. So you don't miss their business. You don't know what this age group is doing. You never cared. Eventually, when they get "real" money, they will find you.
Moreover, your target clients are not leaving you to use these apps. You're not losing business to consumer financial apps. So why should you care about them?
This pattern typifies disruptive innovation
. Disruptive innovation explans how change often happens. That's why you should know about it.
To me, it seems likely that disruptive innovation is already setting the stage for a major shakeout of the financial advice business over the next decade.
I'm not saying the sky is falling. I am saying this appears to be a continuing long-term trend. It's change. Our job at A4A is to identify the issue and help you respond strategically. That's where we can all help make progress.
To be sure, the mere fact that seven free personal financial management apps are referenced says a lot on its own. A decade ago, personal finance apps for consumers were dominated by QuickBooks, Microsoft Money, and TurboTax. Back in those days, you actually paid for personal finance software. The new generation of financial management apps are free to consumers (read: investors).
Moreover, in the old days, six or seven years ago, users had to manually input or import data. Now, transactions are imported automatically over the Web, vastly simplifying expense-tracking and budgeting. This new generation of consumer financial apps is smarter and easier.
Notably, several of the consumer finance apps mentioned in the TechMixer post are for budgeting -- an area of personal finance most investment advisors traditionally don’t support. In fact, advisor clients are wealthy enough not to need a budget, and they certainly have no need to track expenses minute-by-minute.
Again, this is consistent with the idea of disruptive innovation. The new generation of consumer financial apps are serving a need unfulfilled by advisors by helping consumers with budgeting.
Clients that want help with budgeting are not targeted by advisors. So you don’t miss them as clients and don't notice or care that they are starting to use these apps. You keep doing exactly what you have been doing. My guess is the people using these apps are today’s 20 to 40 year olds.
When these apps add on investment advice modules over the next few years, users will find it incredibly easy to use because these apps already have collected data from their users’ financial accounts. Therefore, today’s 40-year-olds that traditionally sought professional financial advice at age 45 or 50 won’t be doing so five years from now. They will stick with Mint or one of its ilk because it will be so easy and familiar. That’s what I’ve been trying to say.
By the way, the story
in TechMixer is naïve, as evidenced in statements like: “Mint is very popular to people who need very effective financial managing.”
But the writer does a good job of summarizing the strengths of each of the seven apps. For example: “The uniqueness of Payoff.com is their social media features, which they encourages sharing financial goals with others through social media to provide motivation for attaining them.”
The bigger issue here for A4A members is to identify the competitive threat now and prepare for it. Respond. I have some ideas about how. How about you?
Read more on this topic here and here.