Hysteresis: [in economics] the effects that persist even after the initial cause of the effects have long subsided.
We tend to overestimate the effect of an innovation in the short run and underestimate the effect in the long run. – Amara’s Law
The great pandemic of 2020 is now giving way to recovery and long-term adaptation. Our entire economy has experienced a pervasive shock to the system, forcing experimentation with new models across virtually all dimensions. I recently examined one financial services sector, wealth & asset management, asking: what changes will be long-lasting or even permanent, how should organizations adapt to thrive, and what opportunities lie ahead for growth-focused firms?
This is an incredibly stressful period for our economy and society as we grapple with new public health challenges, deep uncertainty about the future, and an economic toll required to keep us healthy. It is also a turning point for the creation of new business models, new markets, and a building wave of economic transformation. We will look back on this period as a turning point for our economy and society. Building the next-generation business model in wealth and asset management to deliver highest value at lowest cost is a valuable component in that rebuilding to restore financial security for both retail and institutional clients and in building a resilient wealth and asset management sector.
Platform markets, where the consumer decision involves both choice of platform and services offered on the platform, are a large and rapidly growing portion of the innovation economy. Platform markets are becoming pervasive in several types of markets, including new product innovation (e.g., smartphones, search engines, quantum computing, brokerage platforms), in creating novel ways of delivering established services (e.g., Amazon, Uber, Airbnb, numerous XaaS markets), and in generational technology transitions as superior platforms emerge (e.g., 5G internet service). Platform markets are richly rewarding for innovators, compelling to consumers, and will become even more prevalent in the future.
Platform markets are a crucible that produces dramatic winners and losers. They richly reward first-movers and those who develop compelling offerings early in the market’s development. They generate powerful tipping points, first-mover advantages, a razor’s edge of winning and losing, and sometimes a winner-take-all outcome for a highly profitable innovator.
Winning in platform markets is not easy, but can be richly rewarding when secured through savvy strategic planning and action. Successful innovators in platform markets need to map the system, understand the power grid, model market evolution, and choose savvy strategic actions early in market development to gain an early lead, build rapidly on snowballing success, and secure a dominant position in the steady-state market landscape.
The U.S. financial services industry is one of the most complex and dynamic industries in the world. Leadership in this high-growth sector translates into substantial global economic activity and job creation. There are four primary sectors, plus an emerging fintech sector:
Opportunities abound in each of these sectors for innovative financial services firms to gain a strategic advantage. But organizations that expect to flourish in this competitive market must undertake significant digital transformation as outlined in this article.
Being self-employed and owning one’s own business is very attractive for a growing share of the US labor force. Fortunately, there are many attractive choices that the self-employed can use to establish and maintain the continuity of good retirement saving behaviors. Such retirement vehicles allow for generous savings levels, offer significant tax benefits both at the individual and business level, and, in many cases, require relatively small administrative costs. These retirement savings vehicles should be a crucial component of running your own small business, while securing your future retirement income.
The financial crisis generated significant new regulatory and supervisory architecture to ensure financial stability and enhance consumer welfare. New structures were instituted at the state, provincial, regional, and global levels. While advancing stated primary objectives, these new structures frequently create unintended consequences affecting dimensions of social welfare that lie outside individual supervisory mandates. Unintended effects of new policy and oversight can influence macro-economic growth; availability, quality, and pricing of financial products; returns to capital; and solvency. As a result, new supervisory and regulatory structures can have a variety of ultimate effects on long-term individual financial security, where macro-economic growth, adequate returns to capital, and efficient risk allocation are integral.
In collaboration with the Harvard Business School, Pyramis / Fidelity has studied ways to improve on the current currency hedging practices of pension investors. Previous work has shown that, over time, reserve currencies exhibit negative correlations with equity markets, while normal currencies exhibit little to no correlation. The results of our new study show that pension investors can reduce the risk of global equity exposures by hedging only those currencies that add to equity risk while maintaining exposure to those currencies that either do not increase equity risk or may even decrease equity risk.
Viewpoints articles published for the Insurance Leadership Network, four issues annually, 2012-2017, addressing emerging opportunities and challenges in the global insurance sector as viewed by board directors and C-suite executives of the top 30 global insurance groups, global and national policy leadership, and top subject matter experts.