Practical analysis for investment professionals
26 August 2019

Return on Inertia (ROI): The Price of Standing Still

We’re all familiar with the concept of return on investment (ROI). It’s something companies are always evaluating as they try to determine whether the money they put into various parts of their businesses is going to pay off. But ROI can mean so much more than that, particularly if the fear of negative ROI is holding a business back.

Maybe companies shouldn’t be looking at the return on their investments so much as the return on their inertia.

And that’s especially true with technology.

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Is a new piece of tech going to yield any benefit? Or is it a waste of time and money? These are hard questions to answer, and striking a balance can be difficult, particularly for wealth managers.

Techno fear is real. New tech can be hard to learn, tough to implement, and expensive to purchase.

As an adviser, you can calculate how much a new piece of software will cost relative to the additional revenue it could generate. But what about the less tangible benefits or the associated business drags? How many staff hours will be wasted on disruptive, opportunity-losing practices? Where will the new revenue streams come from? How will services be streamlined? The cost/benefit analysis isn’t always clear. And the return on investment isn’t either.

And inertia is the result. Firms go into window-shopping mode, looking for the obvious, unmistakable ROI that rarely exists. And often you’re comfortable with what you have and don’t feel compelled to do things differently. Why change something that isn’t broken?

The problem is sometimes sticking with the status quo keeps you stuck. As the world around you changes, you stay with the same old patterns. You stagnate. And before you know it, your clients move on and your business is obsolete.

The return on inertia — the price of doing nothing — is what ends up costing you. This form of ROI is always going to be negative.

It’s a tricky pattern to fall into, but it’s one wealth managers need to resist. Sometimes there’s just as much value in adopting new practices, failing quickly, and applying the lessons learned down the road. Failure can be scary, but sometimes it’s necessary in a rapidly changing and evolving world.

Think of it this way: 87% of high-net-worth individuals are open to technology in their investment experience, according to a Forbes Insights and Temenos survey. That’s up from 80% in 2017 and 74% in 2016. And it’s only going to keep on increasing. So what will delaying new tech cost the wealth managers who serve these clients?

The tide of new technology will continue to roll in. So wealth managers need to understand just how much inertia could cost them. If you delay taking on new tech, you will be caught flat footed. Client needs, new regulations, or business necessity will trigger hasty and last-minute adoption of new practices. That will result in wasted time, energy, and money. It’s like scrambling to buy a last-minute gift, paying extra for shipping, and fretting about the limited options. You will miss out on opportunities. And so will your clients.

So maybe wealth managers should give as much weight to return on inertia as they do return on investment.

As a wise fortune cookie once said, “Many a false step was made while standing still.”

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/ Cater1965


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About the Author(s)
April J. Rudin

Founder and president of The Rudin Group, April J. Rudin is widely acknowledged as a top marketing strategist for the financial services and wealth management sectors. She is recognized by Onalytica as the #1 "Influencer" in wealth management, and is a regularly featured source of expert commentary to international news and business outlets, trade publications, and broadcast media. Rudin is an annual contributor to the Capgemini World Wealth Report, produces the Annual Outlook for US Wealth Management for Enterprising Investor, and speaks about wealth, next-gen, and fintech at conferences throughout world. Her thought leadership has appeared in Huffington Post, American Banker, Enterprising Investor, Family Wealth Report, Fundfire, and Wealthmanagement.com. She is the mother of two sons who are quick to point out that they considered her an “influencer” well before Onalytica did.

2 thoughts on “Return on Inertia (ROI): The Price of Standing Still”

  1. Saloni Sanjay Karnawat says:

    It is quite important to look at return on inertia. But to acknowledge the thin line between return on investment and return on inertia is crucial to implement. I ve worked in wealth management firm and it does happen alot of times that new technology is not accepted because of fear of losing out on existing clients.

  2. al says:

    new tech is great if you pick the right one. And that is the problem with new tech. Which one will end up being the standard ? The best approach is to be slower than others to jump into the next tech, but not refusing it down the road. Let others first test and fail with this “new tech”, and implement the ones that survives the ordeal, coz they provide a real solution (saving time or money or better doing already done stuff). Darwinism in tech is extremely high. Pick the wrong one, and you lost a lot of money (and staff, if they don’t want to use it and move to some competitor). That is the quandary with all this.

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