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Innovation and Investments

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Noun; something original and more effective and, as a consequence, new, that “breaks into” the market or society

When you search the words ‘innovation’ and ‘investments’ together online the results are pretty scarce by Google standards with only about 30 million results, the top 10 pages of which are not applicable to anyone seeking actual innovation in the investment sector.

If you change ‘investment’ to ‘technology’ you get over 300 million results and on-point articles. That’s 10x the conversation, concepts, discussions and tangible results.

That’s 10x we are thinking more about the latest app or Angry Bird game than our investments. 10x more that we aren’t thinking about how we will pay our bills, fund our retirement, put the kids through school – the list goes on.

Why is it that we demand more innovative mobile phones and laptops, yet remain silent when our advisors roll out the same old tired investment products that have been left choking in the dust of technology and speed of information.

Let’s quickly examine what might be stifling innovation in Australia and globally when it comes investment products breaking new ground. Not surprisingly, it is similar to what stifles innovation in any industry.

  1. Monopoly/Duopoly/Oligopoly
  2. Creation to Delivery Control
  3. Overgrown Companies
  4. Lack of competition
  5. Fear of failure
  6. Status Quo
  7. Greed
  8. Oligopoly.

That is what we have in Australia currently, in regards to the big four banks. By their nature and size, these companies can limit price competition and are often accused of holding hands rather than challenging each other. Why innovate when you can haggle over 0.25% of an interest rate and seem like a hero?

Creation to Delivery Control.

The current mode of operations in Australia is that one of the big four will create a new investment product – likely an equities fund of sorts. Vanilla or vanilla, what flavour would you like Mr/Ms Investor?

Now that the big bank has created this product, it needs to sell it. How fortunate! The bank happens to have an army of financial planners, all licensed underneath the bank’s banner, who are able to now sell these products. Not all products that are offered to you, just the bank’s preferred products.

The financial planners shovel investors into specific products on their approved product list and the bank can now start the next round of vanilla product creation. Hardly a recipe to drive innovation.

If Coles or Woolworths had the same power over the chain of creation to delivery they would own the farms, pay the workers and own the trucks that take the food to the supermarket as well as the supermarket!

Overgrown Companies.

Bloated companies have a way of becoming extremely glacial-paced in all they do. Well, except for charging overdrawn fees. With record profits, the big 4 banks have little incentive to create new innovative products to draw in new clients.

Lack of competition.

Having an oligopoly doesn’t necessarily have to translate to lack of competition. The duopoly of Virgin Australia and Qantas has been a great thing for travellers as Virgin refused to stop offering competitive pricing much to Qantas frustration. Thanks Richard. A great example of competition balancing the market.

“Innovation has nothing to do with how many R & D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R & D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.” Steve Jobs

The big 4 banks however, have very little difference about them. You could literally, swap the front of the banks and you would barely notice because what is inside the banks are that similar. Imagine a world with a bank that specialised in currency investments and another that specialised in property. Instead, we have stocks, bonds and cash junkies.

Fear of failure.

From the boardroom to the teller, the banking sector is trained to fear failure worse than death. Here is the truth though. Banks wouldn’t have to use clients’ savings to experiment with new investments products. They literally have millions in profits they could use to drive a single idea of innovation on a new product. If it fails, no harm done, the loss can be absorbed by the other millions in profits. If a success, they have built a whole new product in a totally different space and have contributed to the market.

Status Quo.

Heaven forbid things change for the big four banks. Why would they want to change their millions in profits and control over the market? Change is inevitable. Progress is not. The appearance of a new product with a new name which behind the label is really just another term deposit can lend the appearance of progress but really, it’s just another boring term deposit that will deliver you a loss after inflation and tax…

Greed.

Enough said.

It should be noted that the Australian Securities and Investment Commission (ASIC) stated that Australia is poised to become the destination in the Asia Region for investors seeking innovative regulated products.

Time will tell.

*Google results may change over time.