Financial services industry lags at innovation
Say the word “innovation,” and brand names such as Apple®, Google® and Amazon.com® often surface. Investment firms are rarely top of mind, which is a shame. Today we’re seeing great demand for innovative financial products as more people prepare to retire and defined contribution plans begin to assume key roles. But the industry has largely failed when it comes to creating innovative financial products.
Why hasn't our industry generated more innovation in the products and services it provides? Certainly, there are plenty of financial products out there. But that’s really part of the problem. Those in investment services sometimes think that creating a lot of investment strategies and funds for our customers shows that we’re innovative. On the contrary, it doesn't show that at all. In fact, in many cases this behavior reflects many in the industry thinking of themselves by creating more products to try to help stimulate sales, rather than thinking about designing products that meet the real needs and goals of investors.
The proliferation of investment products also adds complexity to the investment landscape, which can cause investors to become even more insecure and unsure of how to act. That’s not good for investors, nor is it helpful for our industry. I talk about this disconnect in a recent interview.
Companies and industries that show real innovation do so by focusing on customer needs. Apple looked at consumer needs around music, mobility and technical simplicity, then put together a suite of products and services that aimed directly at those needs. It now commands a fiercely loyal customer following. Google made a world of information more accessible, empowering people to make decisions. All the complexity of search methodology and algorithms was there for the technology types, but the external focus was on access to information. At Amazon, technology was harnessed to focus on breaking down barriers of time and location by giving consumers the ability to quickly find the right product at the right price, and by having it land on their front porch quickly.
Whether we are loyal customers to these brands or not, there’s no denying the drive and ability to innovate against a clear set of client needs that they demonstrate.
Investment services could benefit from studying these models. In particular, our industry needs to appreciate how important great execution is to success. Apple, Google, Amazon – all have mastered execution in ways that constantly are updated to meet customer expectations. Too much of our investment industry is still struggling to better understand and meet client expectations. Too often our industry model remains based on evaluating the past performance of our products rather than taking a forward-looking view toward possible future outcomes.
Perhaps ironically, it was one of the worst episodes in financial services – the economic meltdown of 2008 – that prompted our industry to strive for stronger alignment between investment approaches and real investor goals. In part, our industry has had to rebuild trust that was lost during that time. So today we’re seeing more emphasis on multi-asset management that uses any number of financial levers to achieve customer goals to try to help balance risks and opportunities for investors. We’re also seeing portfolio managers who are more empowered to move quickly, as an investment decision that is valuable today could become a mistake if execution is delayed or prolonged.
At Russell Investments we try to focus on the real goals of investors, and deliver products that help realize those goals. Once we understand the desired outcomes of an institutional or individual investor, we take an evidence-based approach to investing that draws on our core capabilities, ranging from capital market insights to portfolio implementation. We think it’s an approach that offers real innovation to investors, and helps put their needs at the center of their investing strategy.