Advisors face more competition than ever before. It’s coming from robo advisors, self-directed online brokerages, RIAs, traditional wirehouses, etc.
In the face of such stiff headwinds, what can an advisor do to keep pace—let alone win the race for clients?
Cutting fees is one potential (and probably unpalatable) solution. The reality is that fees can only go so low. And engaging in a price war is a fool’s endeavor. If your only differentiator is that you charge 75 basis points while the advisor down the street charges 100 basis points, you’ll likely lose the battle when the advisor across town drops fees to 50 basis points.
So, what are more sustainable and effective ways to help you get ahead of the race in the most competitive industry landscape of all time? Consider these options, derived from the game plans of our advisor-clients:
1. Expand your menu of products and services.
The fee-for-service model upon which modern wealth management business is predicated works very well. It allows advisors the flexibility to charge clients within reason for a wide variety of services. And while we have seen some fee compression in recent years, the story hasn’t played out as the pessimists feared. Instead, it’s become a narrative about the expansion of services. If all you’re doing is providing the same services you were 10 years ago, you’re falling behind. The good news is that advisors have a tremendously broad sandbox to play in. Common examples of such ancillary services include trust and estate planning, tax advisory, concierge/ultra-high-net-worth services, bill-pay, specialty financing, bespoke alternative and private investments and many more. However, not every firm permits advisors to add such additional services, due to compliance and risk mandates or logistical and operational issues.
2. Expand your affiliations.
A broader menu of products and services, as defined above, does not necessarily mean doing it all in-house. Many advisors instead opt to play matchmaker with the best and brightest in the industry. But the key is that you, as the advisor, must be the quarterback. So, if your client needs tax advisory and you don’t offer it in-house, it’s critical that you have a relationship with a CPA firm. The same goes for trust and estate services, banking, lending and more. You want your clients to view you as the single most essential piece of their financial puzzle, so anything that touches money should be within your purview.
3. Ensure you are in the right place.
The first two points above are easier achieved in some places than others. Captive employee models, like private banks and wirehouses, likely balk at advisors offering tax services in-house. On the other hand, many independent firms have made it a core part of their value proposition. This is not intended as an advertisement for independence. It’s simply to say that your firm should not be dictating the type of advisor you are. A better strategy is to determine who you want to service and how, and then find the firm that best allows you to do so.
4. Find your niche.
You cannot be all things to all people. And unless you have tremendous scale, it’s probably not efficient or effective to offer the full menu of services we laid out above. By having a niche, you don’t need to provide everything—just what your clients need most. For example, if your niche is UHNW clients, you should have family-office services. Conversely, if your niche is medical professionals, a yacht financing department is probably not critical. If your niche is divorcees, you likely need a strong bench of attorneys to refer business to.
5. Have a “thing.”
What makes you “special” as an advisor? If you can’t answer that question, odds are your clients can’t either. While absolutely critical, exceptional client service is not differentiating enough to be your secret sauce. It should be table stakes. You might think your “thing” is that you’re an expert money manager, but it's unlikely in a world where most advisors outsource investments. What we’re talking about are things like insurance expertise, sophisticated financial planning resources, a retirement plan specialty—and many more areas that advisors specialize in. This differs slightly from the fourth point above: Your niche refers to who you serve, and your “thing” refers to how you serve them.
Just as advisors have many choices for where and how to run their business, so do their clients. It’s critical for advisors to paint a compelling story for how and why they are worthy of the client’s business, and adopting a few of the practices above is a great place to start.
Jason Diamond is Vice President, Senior Consultant of Diamond Consultants—a nationally-recognized recruiting and consulting firm based in Morristown, N.J. that focuses on serving financial advisors, independent business owners and financial services firms.