“Is it cynicism, or is it just honesty?” asks Srini Giridhar, Senior Managing Consultant with the IBM Institute for Business Value. His organization recently partnered with the CFA Institute and the Economist Intelligence Unit to ask 2,500 financial services executives and individual investors for their perspectives on the future of our industry.

“The nature of a financial services organization is to be in business for a profit, so of course the transaction is loaded in their favor,” adds Giridhar. He’s very quick, however, to point out that this is not actually the source of the distrust felt by so many investors.

“The real issue is an asymmetric relationship in terms of knowledge. When one party knows a lot more than the other about how financial products are constructed and produced, it creates distrust. Today, every investor is aware of issues that before might have been apparent only to savvy people inside the industry. They’re aware of fees and profits. They want to know where their money is going. They want transparency.”

Time for a shift in focus
In addition to greater transparency, Giridhar says the financial industry also needs to shift its focus from creating products to understanding client needs.

“Firms need to figure out what clients really want. Before, products were designed by providers based on what providers wanted, and this was okay in an expansionary environment. But today, with everyone chasing a smaller pool of investor dollars in a marketplace that is more complex and segmented than before, we need to ask clients what they want.”

As a parallel, Giridhar points to the post-WWII period, when consumers were a homogeneous group with fairly predictable desires in terms of fashion, housing, and household goods. Contrast this with today, when consumers have been fractured into a near-infinite array of demographic and psychographic profiles. Now, many successful products are designed and marketed with a specific niche in mind.

“The future value proposition of financial services cannot be winner-take-all. We need to focus on creating more transactions where everybody sees value in it. That’s the basis for a long-term client relationship, and for the long-term success of the financial industry.”

Our view
Financial services firms must remain bottom-line oriented in order to survive. But the smartest firms will eschew the scattershot approach to product development and marketing, and instead work on understanding individual market segments and exhaustively serving their needs. //

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