Innovate or get out: MDRT

Financial professionals need to innovate, or they will be cut in the current “scissors economy,” said former White House director of economic policy and past managing director of the $15 billion Tiger hedge fund, Todd Buchholz.

Speaking to a packed room of almost 8,000 Million Dollar Round Table delegates, Buchholz explained how in the past 20 years the “building blocks of the world economy got shredded by hyper-competition, resulting in an even more competitive environment.”

As a result, not even the most educated financial professional or the most prolific of financial firms could have predicted the current global liquidity crisis. “The saying used to be ‘Here today, gone tomorrow,’ but now, in this hyper-competitive environment, the saying is ‘Here today, gone today’; just look at what happened to Bear Stearns.”

Due to the “shockwave of change” that is happening around the globe and in “all areas of commerce,” Buchholz strongly advises financial planners to answer the tough questions, such as “Why do clients need you?”

It’s a question that requires a definitive answer, particularly in an age of speed, hyper-competition and an influx of middle-class labour. As such, advisors need to communicate and show their clients why a laptop and some trading platform cannot replace the knowledge, experience and assurance of a financial professional, said Buchholz.

Drawing on the examples of CEOs who have changed the face of commerce, Buchholz demonstrated how innovation pushes leaders to the forefront of their industry.

Featured on the cover of Time magazine, Buchholz described how Peter Giannini, the son of an Italian immigrant, revolutionized banking at the start of the 20th century. Giannini was in San Francisco when the fire of 1906 virtually wiped out the city and left most of the population with nothing.

Three days after the fire, the major banks operating in the city declared that they would not open for business for six months. On that day, a Saturday, Giannini stood up and refused to accept this decision; instead he declared that his bank, Bank of Italy, would be open, starting the following day, a Sunday.

With two wooden barrels, a board and a “face and handshake policy,” Giannini helped the citizens of San Francisco rebuild their city using small credit loans.

“When you compare pictures of San Francisco two years after that devastating 1906 fire and New Orleans two years after Hurricane Katrina, you can see the difference true leadership really makes,” said Buchholz.

In this new “scissors economy,” true leadership begins with communication and integrity. “It is easier for us to look back 3,000 years and learn world history than it is for us to look forward and predict the next five to 10 years,” Buchholz says. “Combine this with the fact that in the modern economy [advisors] are middle-men, and you begin to see that if you don’t innovate, change and redefine, you will get cut from this scissors economy.”

While every professional and worker faces this economic environment, Buchholz believes that those in a position to answer the question will be the advisors that come out on top. “How you answer the question ‘Why do I need you?’ determines whether you thrive or get snipped out in the scissors economy…. You have no choice but to be an innovator — the entire world is being rewritten.”

Originally published on Advisor.ca on June 25, 2008