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Mega Trends Financial Services Firms Can't Afford to Miss

Individual Responsibility for Financial Security

Like me, you probably feel that we’re in between the ending of some major trends and the beginning of others. This in-between time is also a time of uncertainty for most of us.

There’s no need for me to list all the drivers of this uncertainty. Just considering the pandemic and the economic and political upheavals worldwide are enough to make anyone hunker down and not attempt to move forward until we see where we end up.

But when will that be?

Of course, we can’t predict the answer to that question. That’s why it’s important to step back and take note of a few “mega trends” that will continue, regardless of how and when the current situation stabilizes. Firms that start to plan and prepare now will position themselves well for future growth.

Mega Trend #1: Individual Responsibility for Financial Security

This has been an obvious trend for decades, with the shift to defined contribution plans, the growth of 529 college savings plans, and more health savings accounts. And it will continue, regardless of political trends and economic cycles. More important, this mega trend has reached a critical inflection point, creating new opportunities.

For example, here’s one eye-grabbing statistic: IRAs now represent the largest source of US household retirement assets, estimated at $11 trillion, or 33% of all retirement plan assets. And with close to an estimated $500 billion rolling out of retirement plans into IRAs every year, this tectonic shift will continue.

This means that more and more individuals will look to financial services companies as the source for the education advice and investment solutions they need to secure their futures. This also means that firms should be looking at a variety of ways to expand their reach to these individuals, including strategic joint ventures.

For example, one of the most effective and cost-efficient ways to reach individuals continues to be the workplace. Financial services firms should look beyond 401(k) providers when pursuing partnerships in this area. There is a large universe of employee benefit providers that would see a partnership to deliver a broader array of financial solutions as an interesting new opportunity. With a viable digital platform, there are minimal upfront costs to deliver content and the relevant solutions.

Mega Trend #2: Personalized & Portable Employee Benefits

The growing gig economy is closely linked to the first mega trend and has important implications of its own. There is a consensus among economists, technologists, and public policy experts that this trend will continue.

The challenge is to deliver education, advice and solutions to these individuals in an effective and portable manner. Undoubtedly, we’ll start to see a growing focus from a public policy perspective including a restructuring of employee benefits; e.g., retirement savings mandates.

This mega trend is gaining momentum. So it’s a great time for financial services firms to develop their strategies and begin deploying new initiatives.

Mega Trend #3: Fiduciary Standard

The first two mega trends have transformed the financial services industry into the “standard bearer” of retirement and general financial security. So it’s understandable that regulators — not only in the US but also in most major economies — are increasingly focused on the servicing and guardianship of these assets.

For example, the historic standard-setting investor protections, such as “suitability,” are being replaced by a “best-interest” or fiduciary standard of care. This regulatory trend is here to stay, no matter who wins the White House and has the upper hand in Congress.

Financial services firms lose an important opportunity if they merely accept and comply. If firms are able to embrace the core challenges of these regulations and adjust their business models accordingly, they gain a competitive advantage in two ways. First, the regulatory framework is no longer an automatic drag on their resources. Second, they can position themselves as thought leaders, which affords a greater opportunity to shape future regulations.

How We Can Help

At Princeton Financial Consultants, we drive transformation for wealth management, banking, and insurance companies. We’re ready to work with you so that your firm is ready to benefit from these mega trends and build a strong foundation to compete in the “new normal.”

Contact us for a personalized consultation.

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