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Advisors Corner.

FinTech and The Financial Supermarket

7/24/2017

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Sandy Weill, the former Chairman & CEO of Citigroup, famously pioneered the concept of the financial supermarket. Analogous to big box retailers, the financial supermarket construct was designed to provide retail and business clients with convenient one stop shopping for their banking, investment, and insurance needs. The business rationale behind the financial supermarket was grounded in the belief that gaining the ability to holistically serve a client’s financial needs would allow for elevated economies of scope and scale, profitable cross selling opportunities, and increased customer loyalty. Weill’s vision of a financial supermarket manifested itself in Citigroup, as decades of acquisitions created a conglomerate with the scope to provide the full palette of financial products. Despite Citi’s wide ranging capabilities, it failed to develop the necessary synergies across its business units. The customer centric model and its associated highly profitable cross and upselling opportunities never came to fruition; instead Citi became a sprawling and disorganized bank characterized by customer fragmentation and unprofitable business units. In the wake of the 2008 financial crisis, Citi was dismantled and along with it the financial supermarket model. Critics were quick to attack the validity of the universal banking model, citing two major intertwined and insurmountable hurdles preventing its success: the first being siloed and competing business units, and the second the inability to collect, display, and transmit client data. Although these hurdles ultimately proved insurmountable for Citi, they do not prove that the financial supermarket model is inherently flawed, but rather identified problems that can be solved by the tactical implementation of financial technology — ultimately bring to fruition the financial supermarket model and its promised benefits.
Siloed/Competing Business Units
The financial supermarket model was notorious for its siloed and competing business units, a result of decades of a product-centric business model that itself is primarily a result of the design of compensation plans. Financial service firms typical pay their sales reps based on how much of a particular product or service they are able to sell to a client and not on how much revenue the firm receives in totality from a client. For example, a financial advisor is compensated based on the amount of a client’s AUM she manages, whereas an insurance agent is compensated based on the type and amount of insurance he sells. It is likely that the insurance agent has clients that would benefit from advisory services and vice versa. However, rarely does an insurance agent or a financial advisor every introduce their clients to one another. Why? Neither receive any meaningful compensation for their cross selling efforts and they place in jeopardy their respective book of business. Getting back to our example, if the financial advisor makes a mistake with the insurance agent’s client, it raises the possibility that the insurance agent may lose his client. The insurance agent is not meaningfully compensated for his cross selling efforts nor is he compensated for the risk. The possibility of lost business incentivizes sale reps and relationship managers to guard their book of business and not engage in... 

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How To Truly Understand Your Bank's Clients: Employ A Robo-Advisor

6/4/2017

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How well does your bank understand its clients and their financial needs? Unfortunately, this answer is increasingly becoming “not well”. With the rise of online banking, person to person interactions between bank and client have fallen dramatically over the last two decades, and as a result, banks have lost valuable insight into their clients' life events, monetary goals, spending patterns, and time horizons.

So how can banks regain valuable data about their clients without losing the efficiency and convenience of online banking? The solution: robo-advisors. Although a wealth management service, robos provide a valuable information solution for banks. The reason for this is because unlike digital banking, robo-advisors are built to: 1.) be a continuously engaging touch point with clients, and 2.) collect a wealth of insightful data about their clients financial situation.

1). Robo-advisors provide a trusted and continuous touch point between bank and client.

Attaining a client’s holistic financial picture can be difficult for banks, as clients often shy away from voluntarily sharing information - unless they see it as either a necessity or benefit. However, for robo-advisors, attaining client data is not a problem. Robo-advisors need data about their clients to design portfolios, and additional client information helps robos improve their portfolio recommendations. Clients of robo-advisors are willingly to share their personal data as it will aid the robo in helping them achieve their financial goal(s).

2.) Robo-advisors inherently collect a wealth of insightful client data

Client data typically collected by robo advisors includes:
  • Life event goal(s)
  • Income level
  • Marital status
  • Net worth
  • Outside accounts
  • Age
  • Volatility tolerance
  • Employment information
  • Time horizon
  • Asynchronous dialogue
  • Spending habits
  • Charitable causes

All of the aforementioned data, can be refined and the insights transmitted to the appropriate department of the bank. Insights can be used to construct client profiles, provide targeted product recommendations, develop marketing campaigns, and design product offerings.

Let’s say one of your clients is investing for a down payment on a home she plans to purchase in three years. With a robo-advisor, not only are you alerted to this critical piece of information, but you are also informed about her saving schedule and overall financial picture. Your bank now has an information advantage. A bank’s retail 

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How Robo Advisors Can Help Solve The Gig Economy Retirement Crisis

3/14/2017

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The gig economy is growing rapidly in the United States, and with it a mounting retirement crisis. Today, seventy-percent of all independent contractors report having no long-term retirement savings. If that percentage remains constant while the gig industry’s growth projections hold true, by the year 2020, forty-percent of the American workforce will be employed in the gig economy sector, and forty-two million Americans will have inadequate retirement savings. Due to the nature of their employment status, freelancers are unable to participate in defined contribution/benefits plans to which W2 employees have access. This, coupled with a historic lack of financial education and unawareness of alternative retirement savings options, has resulted in an impending retirement disaster.

Although alarming, the looming retirement crisis can still be solved. Ironically, the same type of disruptive technology that has allowed the gig economy to flourish can also be utilized to help solve the retirement needs of its workers. Digital wealth management services, commonly referred to as robo advisors, offer low-touch algorithmically derived financial planning and investment management that is optimized for scale, fees, taxes, and a client’s personal financial situation. These characteristics make robo advisors ideally situated to solve the retirement challenges that face freelancers.

Unlike W2 workers, contractors inherently cannot participate in defined contribution plans. This prohibits freelancers from scheduling payroll deductions and reaping the associated tax benefits. Robo advisors in partnership with gig economy firms can provide auto deposit features to workers and tax efficiently manage their portfolio.

Historically, 1099 workers are unaware of their unique retirement account savings options, such as Simple IRAs, SEP IRAs, and Solo 401(k)s. Furthermore, workers are unsure of how to best approach and prioritize their financial goals. Robo advisors can provide easily accessible personal finance webinars and online finance education courses. As robo technology continues to evolve, robos will be able to recommend the most appropriate financial goal and retirement account for a worker based on their entire financial situation.

Typically, contractors’ seasonal, fluctuating, or irregular income streams make it difficult to set aside money for retirement. Algorithms employed by robo advisors can analyze the patterns and trends in a contractors’ earnings and provide auto deposit / retirement goal recommendations. Furthermore, they can let contractors know... ​

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