From the Affordable Care Act and capital repatriation to Dodd-Frank and the Department of Labor’s fiduciary rule, pundits from all sides are busy speculating about what a Trump presidency and Republican House and Senate will mean for business and regulation.
Amidst the uncertainty around which laws may be repealed, replaced, or delayed, many firms have gone into “wait and see” mode, while others are pressing on with badly needed technology investments and process updates.
Working with a number of financial firms in the latter category has been inspiring, but I’ve begun to wonder if there was a silver lining to the old regulatory environment. Despite the cost, uncertainty, and sometimes-unintended consequences, what if aspects of regulation are actually good for innovation?
The Department of Labor’s new fiduciary rule, which requires financial advisors to give you the advice that is best for you (not necessarily their firms) accelerates digital and robo-advice projects, which had for years taken a back seat on the priority list at financial firms. Most agree these investments will result in more transparent, efficient processes, and the ability to expand to previously underserved client segments.
Another example is something we all encounter a few times a week: the retail checkout stand. October 1 marked one year of the chip-card rollout, a necessary security safeguard that still causes angst for cashiers and shoppers alike. The silver lining? Retailers are investing heavily in point-of-sale systems that accept mobile payments, set to triple in the next two years.
If necessity is the mother of invention, then new necessities created by regulations can certainly yield their own new inventions.
Though undoubtedly onerous, regulatory rules in the financial services, healthcare, and legal industries requiring companies to retain volumes of records are also potentially a big data opportunity in disguise. Deep stores of consistent, reliable data is mandatory for effective predictive analytics or artificial intelligence (AI).
As Forrester Research recently pointed out, organizations are realizing how machine-generated, suggested actions can have a huge impact on their sales operations, fueling the $1 billion-plus prescriptive analytics software market. Similarly, I recently argued that traditional customer relationship management (CRM) should be automated since it’s is a colossal waste of time for sales reps, who must perform manual data entry and lookup for every account and contact.
Companies that are required by law to monitor and archive client communications (requirements unlikely to change anytime soon) have a leg-up when it comes to implementing predictive workflows and AI.
In financial services, stringent social-media regulations and sanctions initially led firms to block advisors from accessing and using apps like LinkedIn and Facebook to engage with clients. When it became clear that there was an overwhelming business need and client demand to make these channels compliant, firms from Morgan Stanley to Ameriprise developed programs and forged partnerships with technology providers that enabled their field advisors to engage in social selling while still remaining compliant. The central marketing and sales operations teams at these companies then drove these programs across the field organization, and in so doing updating and digitizing their core sales practices and business processes.
At Raymond James, for instance, an impressive two-thirds of their relationship managers are active on Facebook, LinkedIn, and Twitter, and are actively growing their books of business through these channels. Contrast this to lesser-regulated companies that never had a forcing function to provide centralized support, training, and technology, and now find themselves lagging financial firms in sales rep adoption, and operationalizing social media for business.
Most traditional companies these days have a fascination with Silicon Valley startup culture and are trying to “disrupt themselves” before a startup beats them to it. But the Valley mantra of valuing speed above all else has a clear downside. Two former tech darlings, Zenefits and Lending Club, stand as stark illustrations of the tension between “move fast and break things” and compliance with regulations meant to protect consumers. Zenefits, the human resources software company, ducked state insurance licensing course requirements to save time and accelerate growth. Lending Club had company insiders taking out loans to inflate earnings.
Moreover, shadow banking, cryptocurrencies, genetic testing, as well as the regulatory battles being waged by Uber, Airbnb, and other collaborative economy upstarts highlight how regulatory frameworks typically lag disruptive technologies and business models. Ultimately, any “regulatory arbitrage” enjoyed by startups in their early stages will come to an end as regulators hold them to the same standards of consumer protection, ethics, and responsibility as traditional firms.
Chances are that the incoming political administration will loosen some regulations. But given that many of the changes will take time to implement–and that these regulations will never go away entirely–companies will be best served seizing the opportunity to lead in this moment, addressing the clear need to update technology systems and processes. Because certainly what isn’t going to change are the sky-high expectations of their clients and workforce.
Clara Shih is the CEO and founder of Hearsay Systems, the complete advisor-client engagement platform for the financial services industry. A pioneer in social media, she developed the first social business application in 2007 and is a New York Times-featured bestselling author and member of the Starbucks board of directors. She recently authored a new book, The Social Business Imperative.