Uber versus yellow cabs: A fight advisers should watch

Big cities around the globe are participating in a battle between the incumbent cab industry and upstart ride-sharing companies like Uber and Lyft. After rowdy protests, Paris and Madrid have successfully limited ride-sharing services for the time being. In New York, the mayor is being pressured to slow the rapid expansion of ride-sharing services as the value of medallions (the license one needs to operate a cab in New York City) has dropped approximately 30% in the past year.
Despite our empathy with cab drivers, history has shown that while progress might wait patiently for a little while, it won’t be stopped. There are some important lessons from this loud battle for financial advisers who want to avoid going the way of the cab driver.
1. Better is better, and the market knows it. Anyone who has been in New York City and has used a cab knows what a dreadful experience it can be. Filthy cars, rude and noisy drivers screaming on their phone, and heaven help you if you try to catch a taxi when the shifts change between 4 and 5 p.m. By contrast, in a ride share, drivers tend to be genuinely friendly (they want a good rating from you), the cars are clean, you know instantly via your smartphone where they are — and we haven’t even compared prices. I recently took a cab from DFW Airport to our Dallas office and paid $25 ($30 with a tip) for a dreadful experience. I returned back to the airport a little later that afternoon in a clean, air-conditioned Prius with a lovely driver for $12. The consumer experience was better before I got in the car (because of the phone app), during the ride (because of the business model) and afterwards (because of the price).
2. If you don’t evolve your business, no moat is deep enough to protect it. The entrenched cab industry has done nothing to improve the rider’s experience in decades. They have had very little need to improve. History and size alone are not omnipotent. If you don’t evolve and change to adapt to consumer needs, eventually you will be usurped. Unfortunately, other than regulating competition out of the system, it’s almost impossible for yellow cabs to beat Uber without reinventing their existing model and making a massive investment.
3. Bigger does what smaller can’t. The problem for cabs, very much like that in our own industry, is that an independent driver cannot make the sizable investment in technology, infrastructure and client experience that is needed to compete with the challengers. Large platform players like Uber are able to invest millions to refine and improve the client experience without the encumbrance of an entrenched system. The marketplace is being changed every day by the disruptors, and cabbies simply can’t keep up.
LIVING WITH CHANGE
So will yellow cabs even exist in a few years? If you listen to futurists, it’s quite likely that driverless shared transit will be the way our kids get around. No doubt five years from now the cab business will be very different.
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What about our industry? Most advisers obviously have a more specialized skill set than the typical cab driver, but pricing for investments is being squeezed and that will continue to occur because many advisers add very little real alpha after fees in investing. The robo solutions (both independent and custodian-created) provide an engaging and dynamic solution when it comes to investments at a fraction of the price of working with an adviser.
So what’s our real value?
Thinking about the help we provide clients beyond investments is the key to flourishing in this new era:
1. Understanding that we help people maximize their lives, not just their net worth. Ultimately, being more deeply involved in our clients’ entire financial lives and going beyond money, helping them gain perspective and make smart choices about the way they spend their money, is as crucial as helping them save and invest. Making that process as tangible and engaging as investing is vital.
2. We use our judgment to help people avoid costly mistakes. We help manage our clients’ behavior, and that means we use our empathy and knowledge to bring truth, understanding and discipline to the way people make choices. We also discuss and contemplate alternatives when things don’t work out as they’d hoped. Helping our clients stick to a financial life plan and appropriately adjust it along the way is by far our most valuable offering.
3. We simplify their life. In this ever-demanding world, we are all doing more than we ever have. That means when people pay for service, they want their lives simplified. Helping to make things understandable and controllable for clients is crucial to surviving. That means getting rid of the jargon and helping empower our clients with relevant, personalized, readily accessible information.
Ultimately clients are going to have to pay for the guidance that we provide beyond investing. But it has to be as tangible and as real as the measurements we create for tracking portfolio management.
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In every disruption, there is always opportunity. If cab companies and drivers had focused on investing in change rather than using all their resources to fight progress, they might have had a chance. For now they must watch their medallions slip in value every day. The same will be true for advisers: How they adapt will completely drive the value of their enterprises.
Joe Duran is chief executive of United Capital. Follow him @DuranMoney.