As an advisor in the financial services industry circa 2009, you understand that these are eventful, painful and historic times. Unprecedented global wealth destruction and the deleveraging of the U.S. economy characterize the economic crisis.
Wealth destruction now amounts to more than $13 trillion, unemployment is increasing at an alarming rate, stock market indexes are at 1997 or 1998 levels. Government policy is greeted with no confidence. TARP and stimulus spending represent unfathomable amounts. Some think things are spinning out of control and we could be heading toward a second Great Depression, but this time it's global.
These dynamics will not simply pass as in earlier recessions. Ninety percent of affluent investors indicated in a recent study that this is the worst financial crisis they have ever faced. Indeed, the average affluent household lost 30% of its net worth. Spectrem Consulting, which specializes in advising on the affluent and retirement issues, believes the current economic crisis will define and shape investor attitudes and behaviors for a generation.
Many companies have reacted with appropriate and traditional responses: They have cut costs, cut staff and have focused on their core competencies-"sticking to their knitting," if you will. While these responses are positive, they are insufficient to deal with the challenges of long-term enterprise growth. Simply hunkering down and waiting out the storm will prove to be the wrong choice for most companies-and for many advisors.
Although the situation appears dire, it need not be. History shows that this is the kind of environment where the businesses and business models of the future are being formed. It is this disruptive environment where those who innovate can gain advantage and come to the fore.
Leaders need to audit and test business models in this new paradigm. They need to define what services, markets and products will emerge from the ashes of the crisis. Research reveals that for many companies, 50% of revenues and profits will be derived from products and services that others are not producing now.
History also teaches us that economic disruption accelerates major secular trends. In the financial services industry, survivors will have:
A great brand that withstands the crisis.
A competitive advantage from smart technological investments.
The ability to withstand more transparency and regulatory oversight.
Effective relationships with consumers as well as distributors.
Ongoing investments in R&D.
New products and services.
An organization built around markets rather than functions.
As problematic as this current environment is, as painful as it is for your clients, over the next decade it will prove to have been the optimal point to invest. But it must be done on a selective basis. Look at management as much as balance sheets, and invest in those who understand how profoundly different the world is and will be. Invest in those who will innovate, seek growth and truly understand this new world.
Mitch Politzer is the president of Spectrem Consulting, a division of the Spectrem Group, a Chicago-based innovative research and consulting firm specializing in the affluent and retirement market.