Why Even Abundant Knowledge Most Likely Won’t Be Enough For Financial Planners to Thrive in The New Age (And What To Do About It)


It has become obvious, in retrospect, that organisations with superb knowledge economy credentials – companies such as Microsoft, General Motors and big Wealth Management Companies, for example –weathered the global economic crisis little better than companies based on the industrial age economics they superseded.

Industrial age economics revolve around the premise that organisations win if they have control of financial and physical assets. They are manufacturers, banks, and mining organisations. They are farmers and primary producers. They are the companies which, historically, have made nations great.

Knowledge economy companies – such as financial planning businesses – are quite different. They recognise there is inherent value in know-how and intangible assets such as brand and goodwill. They prize intellectual property, and their value is based not on control of physical assets, but the quality of the knowledge they have and the talent they’re able to hire and retain.

So why was it, then, these knowledge economy companies weren’t better insulated from the downturn despite all their talent, knowledge, and intellectual assets?

What Financial Planners Must Be Missing

Knowledge economy companies must be missing something.

Imagine that these companies miss innovation capital.

Innovation capital accrues from the set of procedures, people, and infrastructures an organisation creates to translate knowledge into value. Innovation capital is generated whenever organisations make investments which allow them to do things which aren’t business-as-usual.

As a result, they are very good at handling situations which are unexpected. This is an explanation for the observation that many knowledge economy companies failed to do terribly well during the global economic crisis. Faced with unprecedented circumstances, they simply weren’t prepared when their business-as-usual operations were subject to dramatic changes.

Apart from poor performance during the downturn, what is driving modern financial planning businesses to shift to innovation economics?

Most economies are about consumption. Most financial planning businesses are measured on their success as a function of growth. Growth is dependent on selling increasing volumes of their service, ultimately with the goal of controlling particular markets.

This works when there is relative scarcity of the services needed to make life worthwhile.

But individuals (in developed nations at least), increasingly have all the physical goods and services they need to live happy lives. In other words, there is an upper limit beyond which consumption is no longer able to fuel growth at the rates historically demanded by markets. Even population growth, which is slowing anyway, is no antidote.

The implication of this is simple. Growth cannot be expected to continue indefinitely by encouraging consumers to do more of the same.

A satisfied customer who has everything they need does not translate into sales. “I have everything I want, so why on earth do I need a financial planner?”

Innovation economics are different, because fortunes are made by encouraging customers to embrace diversity, to do things in completely new ways. The basis of competition shifts from quality, brand and price, to discontinuities that capture the imagination. It is to creating these discontinuities the innovation economy organisation dedicates itself.

For evidence this works, one need not go much further than the queues which form whenever Apple, the mobile computer company, releases a new product.

Why Do Financial Planners Still Exist?

Yes, why, if consumption of financial advice (and products) is no longer the driver it once was?

It has traditionally been thought that some kinds of services can be provided only by very large organisations with control over industrial and knowledge age resources. Drug makers succeed because they have huge research and development facilities.  Fast moving consumer goods companies win because they have supply chain capabilities that connect products to supermarket shelves. Financial planners because they had superb knowledge about tax, legal and wealth issues.

These historical barriers to entry provide large organisations with the illusion that they’re safe from the upstarts who are encroaching on their established operations. Because of the titanic investments they needed to enter markets in the past, they imagine that any entrant will need to make them also.

But the Internet and other technologies have changed that.

Now, anyone can produce, distribute anything, without the scale investments needed previously. Now, software can be produced in days. Companies can start in minutes. And anyone can absorb knowledge without graduating for a CFP exam. Information is just one swipe away.

There are even cheap three dimensional printing machines capable of producing industrial age products with little or no investment at all. Even shipping can be outsourced at any level of scale with reasonable economics.

In short, few traditional barriers to entry exist for either industrial or knowledge economy businesses any more. Anyone can compete with anyone, as long as they are creative, have a good idea, and the will to execute.

So why is it so hard for “knowledge economy financial planners” to innovate?

It’s because the Curse of Knowledge.

It is so hard to start and to forget what it’s like not to know what we know. At that point, being creative can seem like “dumbing down”. As an expert we don’t want to be accused of “not knowing”. On the other hand, we know for sure that the future of financial planning is not a stable future.

Stability is an Illusion

If you still believe in a stable future, then please don’t.

Stability is an illusion.

Marketing changed the idea of stability. It’s human nature. We still assume the world is stable, still assume that Google will be number one in five years, that we’ll type on keyboards and fly on airplanes, that China will keep growing, and that the polar ice cap won’t really be be melted in six years.

We’re wrong because the dynamics of marketing and storytelling and the incessant drumbeat of advertising have taught us to be restless in the face of stability. And the Internet just amplifies this lesson.

No one watches a mediocre YouTube video they’ve seen before. No one passes on a boring e-mail. No one invests in a stock that’s boring, with few prospects for big growth. No one invests in a financial plan that doesn’t engage.

Here’s what changed: some people admire the new and the stylish far more than they respect the proven state of affairs. And more often than not, these fad-focused early adopters are the people who buy and the people who talk.

As a result, new ways of doing things, new jobs, new opportunities, and new faces become ever more important.

Marketing, the verb, changed the market. The market is now a lot less impressed with average stuff for average people, and the market is a lot less impressed with the same, flashy and expensive financial planning services.

Today, the market wants change.

Not your knowledge, but the rush from stability is a huge opportunity for you. But only when using your right brain potential.

To inspire other financial planners in this community you might want to answer the following question:

How are you using your right brain potential?

Please, leave your answer here below in the comment field. Thank you very much.

Together we can make financial planning matter.

To Your Success,

Ronald Sier

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Leave a Reply 4 comments

Wil Reply

Explain to him/her in the language he/she can understands. Help him/her get it! My job is not just to assert conclusies, but to help him/her understand why I recommended course of action makes sense. Give him/her personal reasons, not just instructies.

jeff Reply

Thanks. More videos

Peter Hafner Reply

Very insightful read. Thank you for posting.

Giorgio Canella Reply

Knowledge/education is very important but I believe that the most important \”qualities\”(all together) of an advisor/planner are/should be :
– focus on the client needs
– listening
– relationship abilities
– ability to ask the right questions at the right time
– patience
– acting coherently
– love for what they do

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