Advisors face more competition than ever before. It comes from robo-advisors, self-directed online brokerages, RIAs, traditional electronic hubs, etc.
In the face of such headwinds, what can an advisor do to keep pace—let alone win the race for clients?
Lowering rates is a possible (and possibly unpopular) solution. The reality is that rates can go that low. And engaging in a price war is a fool's errand. If your only differentiator is that you pay 75 basis points, while the advisor down the street charges 100 basis points, you're likely to lose the battle when the advisor across town drops their fees to 50 basis points.
So what are the most sustainable and effective ways to help you stay ahead of the race in the most competitive industry landscape of all time? Consider these options, derived from the game plans of our advisory clients:
1. Expand your menu of products and services.
The fee-for-service model on which the modern wealth management business is based works very well. It allows advisers the flexibility to charge clients within reason for a wide variety of services. And while we've seen some rate compression in recent years, history hasn't played out the way pessimists feared. Instead, a story has been made about expanding services. If all you're doing is offering the same services you were 10 years ago, you're falling behind. The good news is that advisors have an incredibly wide sandbox to play with. Common examples of such ancillary services include trust and estate planning, tax consulting, concierge/high net worth services, bill payments, specialty financing, custom alternatives and private investments, and many more. However, not every firm allows advisors to add such additional services, due to compliance and risk mandates or logistical and operational issues.
2. Expand your connections.
A broader menu of products and services, as defined above, does not necessarily mean doing it all in-house. Many advisors instead choose to play matchmaker with the industry's best and brightest. But the key is that you, as the advisor, must be the quarterback. So if your client needs tax advice and you don't provide 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 see you as the single most essential piece of their financial puzzle, so anything that touches money should be within your purview.
3. Make sure you are in the right place.
The first two points above are easier to achieve in some countries than others. Captive employee models, such as private banks and wire bureaus, are likely to object to advisors offering in-house tax services. On the other hand, many independent firms have made it a core part of their value proposition. This is not meant as an advertisement for independence. It's just saying that your firm shouldn't dictate the type of advisor you are. A better strategy is to determine who you want to serve and how, and then find the firm that best allows you to do so.
4. Find your niche.
You can't be all things to all people. And unless you have incredible scale, it's probably not efficient or effective to offer the full menu of services we've outlined above. By having a niche, you don't need to provide everything – just what your customers need most. For example, if your niche is UHNW clients, you should have family office services. Conversely, if your place is medical professionals, a yacht finance department is probably not critical. If your country is divorced, you will likely need a strong bench of lawyers to refer the business.
5. You have a “thing”.
What makes you “special” as a counselor? If you can't answer this question, chances are your customers can't either. While absolutely critical, exceptional customer service isn't differentiating enough to be your secret sauce. They should be table pins. You may think your “thing” is that you're an expert money manager, but that's unlikely in a world where most advisors give away investments. What we're talking about are things like insurance expertise, sophisticated financial planning resources, a retirement planning specialty—and many other areas in which advisors specialize. This differs slightly from the fourth point above: Your level refers to who you serve, and “thing” refers to how you serve them.
Just as advisors have many choices about where and how to run their business, so do their clients. It's critical for advisors to paint a compelling story about how and why they're worthy of a client's business, and adopting some 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, NJ that focuses on serving financial advisors, independent business owners and financial services firms.