Since bursting on the scene as a mass vehicle in the mid 1990s, the internet has leveled the information playing field between buyers and sellers. The resulting shift in power to consumers has profound implications that terrify many manufacturers and retailers  …. And also have big implications for financial institutions and financial advisors.

An accelerating focus on value

Of course, consumer demand for value is nothing new. For decades, stores have grappled with shoppers who “cherry-pick” specials, only buying items on sale.  And financial advisors struggle when they make recommendations and respond to client requests for detailed information – only to hear nothing further, as investors implement advice through online accounts.   But the rise of instant communication means that many shoppers are taking their laser like quest for the best price to new levels. And for some, it’s not just about lower cost – it’s the emotional satisfaction of saving money and sometimes a feeling of retribution for feeling that they were taken advantage of in the past.

As just one example, in December, the Wall Street Journal described consumers with mobile devices taking pictures of product bar codes and getting instant price comparisons via an online search. In response, in a battle reminiscent of that between spammers and anti-spam software(could lose for space), some large retailers attempt to block comparison shopping by stocking products with minor variations, so the exact same item isn’t available elsewhere.

One shopper got around this by entering a product’s description into her IPhone and finding almost the exact same item for less on that store’s online site. “It makes me feel so good when I do that” this shopper said. “It’s like I’m giving the finger to the store and saying – Gotcha.”

Aggrieved customers strike back

In addition to changing the dynamics of shopping, the internet has also led to democratization of communication. One result of blogs, You Tube and social media sites Facebook and Twitter is the rise of the vigilante consumer -   more and more people  strike back when they feel abused, no longer powerless.

For instance,  Halifax musician Dave Carroll became a You Tube sensation after his hilarious musical response  to being stonewalled by United Airlines when it broke his guitar. Today, airline staff monitor Twitter and intervene with disgruntled customers before their grievances go viral. And even icons like Apple aren’t immune – witness the online furor over IPhone’s antenna problems last fall.

Going forward, organizations seen as abusing customers are setting themselves up for a backlash - in today’s world of empowered consumers, any company whose clients deal with it through gritted teeth is on borrowed time. In Canada, common candidates for consumer ire include Air Canada, Bell and Rogers – and among some Canadians the big banks. Then there’s Microsoft - and the organization that many would say is in a category of its own when it comes to taking customers for granted, the Maple Leafs.  

The price of everything … the value of nothing

While the 1980s and 1990s saw a rise in the focus on value (consider the success of companies like Walmart, discount airlines and Toyota), the internet has accelerated this trend and also allows disruptive new competitors like Amazon unparalleled access to customers.

With that has come a fixation by many Canadians on price. A character in one of Oscar Wilde’s plays said: “A cynic is a man who knows the price of everything and the value of nothing.”  That describes many consumers; in the absence of crystal clear value, price is all important – and for some shoppers price is the only thing that matters, period.  In the process, many consumers don’t care how much of someone else’s time they waste getting advice on cars, technology or financial solutions, before going direct to buy it cheaper.

Succeeding in a “customer-empowered” world

This shift in power to consumers has far-reaching implications for financial institutions and in fact for every industry. Here are five examples.

1.Being able to articulate clear value

It’s a cliché to talk about the key role of value … but sometimes clichés are borne out in reality.

The problem for many advisors is that when they talk about the value they provide, they use vague generalities. Going forward, the most successful advisors will be those who can describe the value they provide in specific concrete terms.

2. Pressure on windfall profits

“Windfall profits” because  you’re dealing with customers who aren’t that knowledgeable about their alternatives or because an industry operates as an oligopoly and can set premium prices will come under growing pressure from new entrants.  Almost certainly we’ll see more cases like ING’s assault on the margins on bank savings accounts, price competition among online brokers and cell phone insurgents cutting prices.

For financial advisors, expect more focus on value received by large clients.  Historically, some advisors have relied on profits from a few large accounts to pay the bills … anyone expecting above norm profitability from your largest clients going forward may find themselves challenges.

And for advisors relying on deferred sales charges from mutual funds, expect increasing questions about these as well. The recent launch of a program by discount broker QTrade to rebate DSCs will accelerate the risks to advisors of relying on DSCs as the cornerstone of their business.

3. Sorting out those investors willing to pay for advice

Going forward, financial institutions will increasingly need two different strategies – one for those customers open to paying a premium for superior advice and service, another for those where price is all that counts.  

When it comes to advisors, as those Canadians willing to pay for value sort themselves out, many advisors will end up working with fewer clients – but serving those clients better.

4. Unbundlng fees

 Where the fee for advice is buried in the cost of the product, we’ll inevitably see unbundling of costs and accountability for results. People will increasingly demand to know how much they’re paying for advice and what they’re getting in return.

5. The key role of candour and transparency

Finally, candour and transparency will become the cost of doing business. At the same time as people are more skeptical of everything they see and read, companies and brands that have earned consumers’ trust have a tremendous competitive advantage; think Apple, IKEA and Lululemon.

And that doesn’t just apply to big companies … it’s true of individual advisors as well.

With changes such as we’re seeing today, there will inevitably be big winners and big losers – with the winners those best able to adapt to the new rules of the game. In today’s online world, there’s a big upside for those  who deliver outstanding value and operate transparently and with integrity – and a very big downside for anyone who doesn’t.