Remember the old aphorism about college professors being great academic achievers with no practical skills? I'm not sure it was ever true, but Creating Value in Financial Services disproves anything that happens to remain of this now antediluvian adage. Professors Edward L. Melnick, Praveen R. Nayyar, Michael L. Pinedo and Sridhar Seshadri, all from New York University, have created a work that will most certainly be of interest to both academic and business readers with an interest in the future of global financial services. In reading this book, it becomes apparent that our business is changing at an ever-increasing rate while the tools we use seem always to be one step behind the curve.

It may not be an over-simplification to define the new paradigm in terms of serving all clients, wherever they are in the world, in a cost efficient and effective manner. Unlike times past, nobody can be said to "own the customer." The concept of "loyalty" is largely outmoded and we might better think of the client as temporarily "rented" to the extent that we could service him/her in a satisfactory manner. The failure to meet continually escalating client demands will most certainly result in competing organizations being immediately enriched. As the twin revolutions of disintermediation and deregulation combine with rapid advances in technology, competitive forces will certainly reduce the number of providers able to meet the demands of the marketplace.

Recognizing the need for a multi-disciplinary approach to the problem, the editors of Creating Value in Financial Services have called upon colleagues at a number of academic and business institutions to fashion a resource for those who wish to understand and begin to address the challenges that lie ahead. Whether they write about distribution, regulation, consolidation or diversification, the authors provide a well-conceived description of the problems and an analysis of potential solutions. There are chapters that identify sources of value-added for end-users, skews in customer profitability and the increase in consumer price sensitivity that will make profitability in financial services more difficult to attain. If economics is too important to be left to economists, the editors of this book understand that the new and rapidly changing world of financial services is too important to be left to financial writers continually focusing on daily events while ignoring the much larger picture that is rapidly emerging.

As technology continues to improve, the consumer will have the ability to choose from among an assortment of specialized providers while employing only a single relationship to meet any number of financial needs. One need only be aware of Charles Schwab's new Access Account, which enables clients to write checks, make deposits, transfer money, get cash, and pay bills via the internet, to understand the implications of what may be accurately classified as a financial revolution. The ability of customers to easily search for and find new providers, combined with the minimum effort required to simply and inexpensively transfer their business, while leaving the bookkeeping with the primary supplier, will put increasing pressure on traditional relationships.

Technology is giving the buyers of financial services increasing power. Providers will have to innovate or face a competitive climate of commodity pricing. As this is written, Merrill Lynch, in what may be a watershed event, has changed its historic, and highly successful bundled approach, and is dividing its business into advice that will be fee-based and brokerage which will be available on-line and priced more like a commodity. This move will have financial and cultural implications both for Merrill, the company's 15,000 financial consultants and its competitors alike. It will likely result in greater pressures on firm profits and employee earnings, while providing increasingly favorable options for customers. It almost sounds like a textbook description of capitalism at work.

In identifying the problem of the upheaval in financial services, the editors have given the reader a great deal to contemplate. They make clear that deregulation, including the probable passage of broad new financial legislation now in the congress, is accelerating the blurring of boundaries between insurance, commercial banking, investment banking and brokerage. The implications are most certainly a level of competition even greater than previously experienced. At the same time, the worldwide demographics for the financial services industry have never been better. This convergence of competitive change and increasing opportunity make a book like this especially timely. As one who is involved in the industry, I share their emphasis on the need for specialized consumer services delivered both efficiently and with moderate cost, combined with the flexibility for uncomplicated change. The problem may have always been one of providing superior value, but in the past, it took time for the buyer to figure out who was providing it and who wasn't. Now it only takes a few moments and almost no cost to be a knowledgeable consumer. I believe that by describing the current landscape and providing some potential solutions, this book makes a significant contribution to the managerial dilemma. Ignoring it is akin to getting under the covers and hoping it will all go away; but it won't.

Managing Principal

Neuberger, Berman, L.L.C.

August 2, 1999