How wealth managers can support the fast-growing gig economy

To better support the financial well-being of gig workers, wealth managers must embrace collaboration and simplicity.

It has become a hot economic and social topic in the past few years. A recent EY survey shows that 40% of large US employers plan to use more gig workers by 2020. About a quarter expect more than 30% of their staff to be gig workers by then.

EY has even launched a platform for experienced contractors, GigNow, which is available to workers in five countries.

The rise of gig work is another example of how disruption presents both challenges and opportunities to wealth managers.

As a start, there are three key factors for investment firms to consider:

• The impact on employment models
  The labor market will see increasing emphasis on flexibility, temporary contracts and individual entrepreneurship (e.g., workers as “free agents”).
• The impact on companies
  This includes how relationships between employers and gig workers evolve, and how benefits provided (or not) could affect companies’ costs, margins and ultimately their valuations.
• The impact on workers as investors
  Having different (or possibly no) corporate support (e.g., retirement savings plan, health insurance) will have a significant effect on those choosing the gig work model. 

It’s that third area — the impact of gig work on “workers as investors” — that I want to focus on.

A new way of working

The nature of gig work means that no two workers, and no two “gigs,” are exactly alike. But it seems clear that taking a more entrepreneurial approach to employment will have an effect on every gig worker’s income streams, savings (and spending) habits, health care needs and retirement planning.

Without access to employer-sponsored retirement benefits, the self-employed have a much greater personal responsibility for funding their retirement compared to employed workers. A global study (pdf) by Aegon found that 44% percent of independent contractors aren’t saving anything for retirement and 22% only do so occasionally.

However, a recent study from T. Rowe Price found that 78 percent of US gig workers consider themselves more involved in their personal finances as a result of participating in the gig economy. Thirty-nine percent of gig workers report checking their accounts more regularly, 32 percent are more on top of their bills, and 23 percent are more “hands on” with their individual investment accounts, since joining the gig economy.

In other words, gig work represents an entirely new client segment for firms to consider, which presents both challenges and opportunities.

Firms’ ability to support the gig economy may depend on their ability to understand how this constantly changing way of working affects the lifestyle and investment needs of individual investors. And that understanding needs to be along the same lines as that developed by online retailers, who are now often able to predict what and when customers will buy.

Embrace collaboration

In my view, wealth and asset managers will need a combination of new and existing capabilities if they are to seize the opportunities presented by the gig economy. Clear strategies and the ability to build effective external partnerships will be crucial.

For example, new insights into customer data and behavior will be vital. As I have written in previous convergence-related blogs, collaboration with external data specialists may hold the key to success here.

The ability to understand how and why individual workers select particular types of “gigs” will allow firms to analyze the implications of those choices and to begin predicting what each gig worker’s financial needs may be.

Firms will then need to use these types of insights to deliver customized services, using the combination of human and machine touchpoints that best suits each investor. Uber partnered with Bettermint to offer flexible retirement accounts with reduced fees. Lyft has a similar program with Honest Dollar. Again, collaborating with non-financial firms — for example, to leverage gamification approaches — may be critical to incentivizing a wide range of gig workers to take control of their finances.

Develop simple strategies

If all that sounds like a tall order, there’s no need for investment firms to panic.

Many aspects of gig employment play to investment firms’ existing ability to help the self-employed, such as entrepreneurs, manage their complex financial lives.

And simple strategies can help firms cut through complexity and gain desired results. One approach could be to concentrate on a specific distribution channel. For example:

• A D2C play could involve focusing on building direct relationships with individual gig workers, perhaps in partnership with technology firms.
• A B2B2C approach could concentrate on supporting advisors or other intermediaries helping individuals to manage the reality of transitioning to gig work.
• A B2B play could focus on delivering specialized support to employers developing their own gig employment platforms, helping them to attract and motivate the best agile talent.

I am optimistic about the rise of the gig economy and think it will be good news for wealth and asset managers. It will create new opportunities for them to support and empower a growing group of workers, as well as improve their financial well-being.

But success will depend on embracing convergence between new and existing practices. Collaboration and simplicity will be crucial if firms are to achieve the hybrid of human and technological capabilities that will best enable them to support the growing gig economy.