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Innovation is arguably the core competency of any business in the 21st Century. Such a jargon-laden statement could be straight from any management textbook. After all, as we are constantly reminded, change is the only constant. So to keep up, you need to innovate.
Robo-advice. Straight-through processing. Automated rebalancing. Artificial intelligence. Take your pick. Technological innovation in the financial planning industry is alive and well. In the US, 71% of people under 35 want technology to be at the core of their engagement with a financial planner.
Technological innovation is happening in all industries. From drones doing deliveries to cars driving themselves. Innovation is everywhere. Except perhaps when it comes to people. To illustrate this point, a seemingly unrelated anecdote.
The City of Cape Town is grappling with two major issues at the moment: water crisis and traffic congestion. Both are due in large part to a dramatic increase in population over the past decade. So two campaigns in the city are now underway. One, reduce water usage. Two, reduce traffic congestion. But the problems need different solutions.
Changing water usage behaviour, and co-operation from the weather gods may help the water crisis. The traffic problem is more challenging: a shortage of space and a surplus of cars. So innovation is needed to solve the problem.
One proposed innovation is to encourage businesses to allow their employees to operate more flexibly so that everybody is not on the road at the same time. There is currently a media campaign to this effect, and a recent radio talk show encouraged businesses to share how they enable employees to work flexible hours. There was not a flood of creative contributions. The best on offer were a few businesses that have core hours, which for example require employees to be in the office from 10am till 2pm. They can then make up their hours on either side of that, either by coming in early, for example, at 6am or 7am; or leaving later at 6 or 7pm. The contribution of these attempts at flexibility in reducing congestion is questionable.
But more questionable is the apparent lack of innovation with respect to how people work, and how they add value to a business. We are in an increasingly knowledge based global and local economy. Yet in South Africa the approach to managing people seems to remain largely premised on that emerging from an industrial revolution when in fact the only time a person was productive was in fact when they were on the production line.
As Morgan Housel says in an article entitled, The Advantage of Being a Little Underemployed, to realize how outdated the five-day, 40-hour workweek is, you have to know where it came from. He points out that the average American worker in 1900 was working on average 10 hours a day, 6 days a week. Railroad unions demanded a change to five-day, 40-hour weeks to reduce accidents caused by fatigue. Their demand was resisted and the rail system virtually came to a halt as workers went on strike. In 1916, President Woodrow Wilson pushed through the Adamson Act legislating the change that the unions demanded, and then 20 years later as part of the New Deal, the same working conditions were extended to all industries.
Eighty years later. These conditions remain standard, across most industries. Which is crazy, given as Housel points out: “The biggest employment change of the last century is the number of careers that shifted from physically exhausting to mentally exhausting. From doing stuff with your arms to doing stuff with your head.”
Financial planning definitely involves doing stuff with your head. The advantage of this, and the disadvantage, is that you carry your head with you wherever you go. And research suggests that going for a run or doing yoga is better for your head than sitting at your desk all day.
When I started my career in financial services, my first job was in asset manager research. I recall one of my early asset manager due diligence interviews when a colleague and I asked a highly rated and successful fund manager where he got his investment ideas. We expected a variation on the usual “rigorous screening process”, followed by “lots of reading and analysis” and of course “meeting management”. His response? “Eh…mmm….let me think about that….eh…on the golf course….in the shower….”And he wasn’t joking. But what he was highlighting, that jobs, which involve doing stuff with your head, don’t keep office hours. Particularly the type of office hours designed for railroad workers at the turn of the 20th Century.
When you are doing stuff with your head, the value that you can add to a client also has no correlation to the time spent. It is no surprise then, that Ricardo Semler, a highly successful, innovative industrialist and entrepreneur from Brazil, wrote a book entitled The Seven Day Weekend. He encourages employers to think differently about how they manage their people, and more importantly, how to get the best out of people. He argues that technology that was supposed to make life easier such as laptops, cell phones and e-mail, has actually encroached on people’s free time.
But as he says, this can be a good thing if you have the autonomy to get your work done on your own terms and to blend your work life and personal life. He suggests that innovative employers will eventually realize that people may be more productive if they have the flexibility to decide for themselves when to work and play, rather than the employer deciding. Rather than time in, employers ideally should focus on value out.
The importance of value was highlighted for me last week when I met with a financial planner who related how they helped a potential client resolve a dilemma about their future retirement. They helped the client assess retirement options in a more rigorous and creative way than if the client had simply tried to do it on their own. No doubt the experience and thinking that this planner had done over many years made this meeting very impactful.
When it came to discussing the financial planning fee, the planner mentioned that the upfront financial planning fee was R20k, and that the process usually involved four meetings. The potential client had experienced so much value in just one aspect of the first meeting, that they were moved to ask if this was R20k per meeting. Not because they didn’t want to pay the fee, but because they thought given the value they had already experienced, this was a possibility.
In a knowledge based economy, when you are providing a professional service based on knowledge, experience, thinking and interpersonal skills, to quantify anything in terms of time, be it your employees’ working hours or the time spent with a client seems to be a disservice to the value that financial planners and their staff potentially can add to their clients’ lives.
Dr David Rock spoke at the FPI Convention in 2012 on the topic of the Neuroscience of Leadership – Improving Organisations by Understanding the Brain. He quoted research of 6000 people who were asked when they do their best thinking. Only 10% of respondents said it was at work. More disconcertingly, the research asked how many hours of quality work people felt they did per week, whilst at work. The number was strikingly low, at less than 5 hours per week. So the opportunity to innovate with respect to how you manage people, and potentially enable them to be significantly more productive is ripe for the picking.
Financial planning is a people business. And people are the greatest resource in delivering that service. So as you think about innovating to keep up with constant change, don’t get stuck on technology and forget about your people. As the strap line of listed technology company EOH puts it: Technology makes innovation possible, people make innovation happen. You neglect people innovation at your peril. They may just end up working for a business that has found a real way to make a dent in traffic congestion!
David Rock, The Neuroscience of Leadership – Improving Organisations by Understanding the Brain, Talk at FPI Convention, 2012
Morgan Housel, The Advantage of being a Little Underemployed, www.collaborativefund.com, 17 May 2017
Ricardo Semler, The Seven Day Weekend, Penguin Publishing, 2004