Fintech companies should prepare for a rapidly shifting market driven by new regulations and changes in consumer behavior, according to a report by McKinsey & Company. The consultancy recently released new research outlining seven critical aspects of these changes and how companies can succeed in the space. In addition to fintech companies, financial advisors may want to take a closer look at these trends to stay ahead of significant market changes.

In this article, we will look at the report's findings and what it means for both the fintech industry and financial advisors that leverage these technologies. (For related reading, see: 2016's FinTech Disruptors: How Can You Benefit?)

1. Expanding Scope

The fintech industry has expanded into more than 30 different financial services throughout the value chain. For example, social finance (SoFi) has expanded from offering financial products to young professionals to career coaching and networking. These trends could point to increasing competition for robo-advisors and traditional financial advisors as fintech companies involved in ancillary financial services add advisory services to their core product offerings.

2. Increasing Diversity

Fintech companies are employing a wide variety of business models that target a diverse range of customers. For example, robo-advisors target younger tech-savvy clients looking for streamlined retirement savings, while other models focus on helping financial advisors offload time-consuming tasks like portfolio rebalancing and focus on value-added activities. Advisors should ensure that they’re taking advantage of these new technologies.

3. Improving Collaboration

Fintech companies have been collaborating with each other to maximize their revenue and market share. For example, BBVA Compass is working with FutureAdvisor to offer low-cost financial advisory services to help customers with portfolio optimization. Traditional financial advisors may want to consider these same kinds of collaborations to reduce their overhead costs, reach a wider potential audience and enhance their technological competitiveness. (For more, see: Robo-Advisors and Banks: The Next Robo-Frontier.)

4. Impending Consolidation

Fintech companies are likely to see consolidation as larger players turn to acquisitions to meet their growth objectives. For example, Prosper Marketplace spent $30 million to acquire BillGuard, renamed it Prosper Daily and enabled users to track spending and credit. Financial advisors should be aware of these changes and work with established companies, as well as make the most of any acquisitions made by their own platforms.

5. Normalizing Valuations

The fintech industry has begun to slow down as it has matured, which means that valuations for start-ups in the space slowed down. Between 2014 and 2015, valuations for fintech companies grew by 77% on average before slowing to 9% between 2015 and 2016. Traditional financial advisors should keep in mind that this slowing growth could lead to fewer start-ups and more failures, which means picking established fintech firms might be a wiser choice.

6. Shifting Regulations

The regulations surrounding the financial services industry have started to adapt to fintech companies that have entered the market. In some cases, these regulatory changes could hurt fintech companies that have effectively circumvented existing rules. In other cases, fintech companies could help financial advisors comply with the latest regulations and make it easier to focus on clients and not worry about legal matters as much. (For more, see: Fintech Firms Preparing for Regulatory Changes.)

7: Emerging Ecosystems

Fintech companies may begin to create their own ecosystems to meet clients’ needs. For example, peer-to-peer loan providers may eventually decide to branch out into financial advisory businesses since they serve the same client base. Financial advisors should ensure that they’re a part of these ecosystems over the long run to profit from these changes rather than being left behind and trying and catch up down the road.

The Bottom Line

McKinsey & Company’s latest research highlighted seven important changes occurring within the fintech industry that could impact financial advisors and their competitors. By being aware of these changes, advisors can ensure that they’re well positioned to stay ahead of the trend and be a part of the future rather than being left behind. (For related reading, see: What Does Trump Mean for the Fintech Market?)

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