Changing Consumer Perceptions in Financial Services

Research on Changing Consumer Perceptions in Financial Services

This blog is based on an interview conducted by Bill Hortz, Founder of the Institute for Innovation Development with Bill Sheldon, SVP at MarketBridge

Disruption breeds change, but the right kind of change is driven by building from your customers’ needs and perceptions. In a business environment of accelerating change, it is especially important to continuously challenge your core business assumptions to ensure that they are still relevant to the needs of your clients. Remember that however brilliant you may think your new service offering may be, it only becomes a true innovation when your chosen course of action gets enthusiastically adopted.

To enhance the effectiveness of your engagement efforts, you need to stay close to your customers and prospects – going deep by asking the right questions and listening very carefully. Your return-on-investment (ROI) is incumbent on the amount of time and depth that you go into researching and understanding the unmet needs of customers as they are tackling the growing disruption around them.

To that end, we reached out to Institute member Bill Sheldon, SVP of MarketBridge, to dig further into their recent research study, Consumer Perceptions in Investment Management. We wanted to understand what they uncovered as to changing consumer perceptions amid FinTech and other industry disruptions and their recommendations on how to engage your customers and prospects with the change they want to see.]

Hortz: Can you walk us through how you developed and conducted your research?

Sheldon: As you may recall, we launched a comprehensive study last Fall on FinTech Disruption within the Financial Services industry, which resulted in the creation of our FinTech Disruption Toolkit report. The design point for that research was to identify opportunities for financial services incumbents to leverage their inherent Go-to-Market advantages to forestall disruption from new market entrants.

We analyzed the entrant and incumbent strategies of over 100 financial services and fintech companies across investing, banking and payments, and insurance to identify potential insights and strategies that incumbent firms can leverage to thrive through this disruption.

As a part of that analysis, we also conducted more than 1,500 consumer surveys across investment management, banking, and insurance consumers to help connect those business strategies to consumer preferences in these select sub-segments. You know, technology enables disruption, but the real driver of disruption is unmet (or under-met) customer needs.

So, we designed the investment management consumer survey as an example of the type of in-depth research FinTech incumbents need to conduct to understand their changing customer needs and preferences.

By further interviewing more than 500 investors across age groups and income ranges, we identified the impact that disruptors―like Betterment, Wealthfront, Robinhood, and others―were having on consumer preferences, and more importantly, identify what Go-to-Market advantages should be leveraged by incumbents to secure market position and maintain growth in the face of this disruption.

Hortz: What were the major findings you uncovered from your research on how consumers are navigating investment management options and services?

Sheldon: Frankly, we confirmed a lot of what many investment managers likely know or suspect which is that younger investors prefer digitally centric firms―indeed 50% of our respondents between 20 and 39 use an online/digital firm―versus the 60+ investors who are three times more likely to use a large national firm.

Likewise, younger investors tend to be less loyal to their investment firms than older investors.  Our survey found that 70% of young consumers would switch to an online-only firm with lower fees, 71% would open an investment account without speaking to a person, and that 67% trust robo-advisors (compared to 37% of older consumers).  Investors under 60 are five times likelier to have switched or considered switching investment firms in the past 12 months.

We also found that, regardless of age, there are some “table stakes” value propositions that are still important for most investors, such as a trusted brand name, a firm that can be used for many years (in spite of the above-noted switching behavior) and a firm that provides the “most value”. The good news is that these “table stakes” can be significant sources of Go-to-Market leverage for incumbents to counteract disruption from new entrants―what we referred to as Platform Advantage in our Disruption Toolkit report. The built-in security, trust, and authority of an established brand provides strong emotional value to customers to validate investment management choices and cement loyalty.

Lastly, we found that consumers of all ages most frequently want support via phone or email, while text/chat support is gaining momentum with younger consumers. Our survey was done in the Fall during the height of the pandemic, so it is not a surprise that face-to-face support was on the decline.

However, recent events with Robinhood likely suggest an increase in the demand for phone support over email given the delays in response to service inquiries and the desire to speak with a person. As Robinhood noted on their Twitter account on Feb 26 – “We’re working on expanding phone support. You can now request phone assistance on Robinhood for options position and account security scenarios with more situations coming soon!”

Clearly, there will be an increase in demand for phone support, and this is an opportunity for incumbents to leverage their Presence Advantage with omnichannel experiences and service excellence with strongly established delivery ecosystems.

Hortz: Your findings on younger consumers make sense and are to be expected, but unexpected is your finding on in-person interactions and presence in a community not being valued by older consumers as a high priority. This seems to go against the grain of core assumptions of many financial advisors about their clients.

Sheldon: Yes, that one came as something of a surprise to us as well. But remember, this survey was conducted in the early Fall near the height of the pandemic, so face-to-face interactions were not possible. Like many industries, customer behavior was transformed overnight as virtual interactions became the norm.

The key question is how behavior will change once the pandemic ends. Clearly, some customers will revert to their previous behavior and a preference for face-to-face interactions with their advisors, but likely some of this behavior change will be permanent, and the need for physical presence and face-to-face interaction will be diminished.

But this does not mean the need for human interaction will be diminished. In fact, the need for personalized, timely human interaction supplemented by digital engagement channels in a coordinated, customer-driven manner will become a key differentiator.  While incumbent firms have focused, and made progress, on delivering better digital experiences, leveraging their physical assets must be a key component of the omnichannel experience.

The Presence Advantage of incumbent firms cannot be overstated. Clearly, the requirement for geographic proximity is changing, and it will require firms to stay close to their customers’ preferences.

Hortz: How does this overall research inform the positioning of financial industry incumbents versus younger FinTech entrants? What mindset should incumbents embrace?

Sheldon: I think this research―when combined with the four incumbent Advantage Factors we identified in our FinTech Disruption research―provides a useful framework and roadmap for incumbents to evaluate how their firms need to navigate FinTech disruption in the Investment Management sector, particularly as we exit the pandemic and firms will need to “reset” much of their go-to-market.

Furthermore, I believe that most of the disruption from FinTechs in the Investment Management sector results from customer experience (CX) innovation as opposed to Product Innovation or Market Innovation. FinTech entrants in this sector for the most part are not delivering new investment products or innovating markets, rather they are delivering traditional investment management services in new ways―providing “robo-advice” vs traditional active management and providing digital-first platforms that enable trading and portfolio management in “reduced-friction” ways.

The good news is that CX innovation frankly pays to the strengths of incumbents and the four inherent Advantage Factors:

  1. Pathways Advantage: Their large customer-based and established position.
  2. Perceptivity Advantage: Their expansive historical customer data and insights
  3. Presence Advantage: Their greater presence of customer support and human interaction
  4. Platform Advantage: Their existing awareness and marketplace experience

Much of the investment research highlighted the need for omnichannel interaction, and the incumbent’s Presence Advantage is a significant asset that should be leveraged to address CX disruption. We outlined several potential actions based on the investment management, but incumbents should do their research to see how it applies to their customer base.

Simply put, we believe the mindset should be “Channels don’t choose customers, customers choose channels.”

Hortz: That is good advice on mindset but what specific actions do you recommend for investment management firms in response to these findings?

Sheldon: We suggested several actions for consideration in the report as examples of the types of actions that incumbents should consider in responding to disruption in their markets.

You will see that many of them focus on improving channel choice and customer experience for their customers, such as: enhance digital presence and digital options; invest in text/chat and match human presence alongside technology enhancements.

While our initial research suggests that these are the types of tactics incumbent investment management firms should consider to mitigate disruption from FinTech entrants, firms will need to do the research with their customers and prospects.

The Perceptivity Advantage refers to the advantage incumbents have over what entrants have in understanding their buyer audiences. Often, however, there are organizational barriers that prevent incumbent firms from tapping into this rich source of data and taking full advantage of it. The main ways to leverage Perceptivity are to actively manage perceptions, fully leverage and activate insights, and focus on the whole customer experience.

Practical ways to do this are:

  • Feedback –Ensure customer feedback is collected, leveraged, and demonstrate action based on this input – across the buyer journey.
  • Personalization – Connect better with customers and prospects by providing them an experience tailored to their individual preferences.
  • Segmentation – Incumbent firms should have established segmentation models of customers and prospects―care must be taken to ensure their ongoing relevance and actionability.

Hortz: Any other thoughts you would like to share about how research can help hone strategy?

Sheldon: Per my earlier comments above, we believe that coming out of the current pandemic, with fundamental shifts occurring in customer buying behavior, incumbent firms must invest in the research with their customers and prospects to:

  • identify comprehensive and agile insights to align around the most important buyer changes.
  • redefine post-COVID-19 preference-based journey maps by key persona with prescriptive activation.
  • develop buyer engagement scorecards that allow them to track the right mix of big and small data metrics to align (and re-align) to customer preferences over time.

Now is a time for radical customer-centricity and commercial agility as incumbents need to leverage their go-to-market advantage factors coming out of the current pandemic.


This post originally appeared as a post on LinkedIn:

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation, and unique client/community engagement strategies. The institute was launched with the support and foresight of our founding sponsors – Pershing, NASDAQ, Ultimus Fund Solutions, Fidelity, Voya Financial, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).