Be Good Where Others Are Bad

Chris Homa

Recently, I was doing some work for a client in preparation for midyear business plan reviews. I traveled down a bit of a rabbit hole on the concept of inverse benchmarking, which challenged my perspective on creating a competitive advantage as a financial advisor.  For those not familiar with the concept, it’s simply put:  understanding what your competitors are not doing well and focusing your efforts on creating a differentiated advantage for your business in those areas.  Even more simply put: Be good where others are bad.    

We are approaching a crossroads in the delivery of financial advice.  The number of financial professionals is dwindling, thereby creating a need to automate and outsource many critical functions of wealth management delivery.  Ironically, most of these functions which new technology can perform better than humans are still central to the value proposition many advisors promote to their clients:  lower fees, better performance, and more detailed planning.  I predict that within the next 5 years delivering a comprehensive financial plan funded by a well-diversified, low fee investment portfolio will be primarily automated and ubiquitous, not a competitive advantage.  So as the technological revolution marches forward in financial services, what inverse benchmarks will give advisors the edge they need going forward?

Perhaps also ironically, it will be to promote the human capabilities of the business that no technology can replicate or replace.  As a former colleague (and one of the most competent and thoughtful advisors I know) always says, “this is not a selling profession, this is a helping profession.”  I will take that even a step further and say, “financial advice is not at its core about money, it’s about people.” After reading dozens of articles, client surveys, and speaking with many financial advisors and their clients, I have identified three key areas where financial advisors can create a competitive advantage through inverse benchmarking:

1. Communication standards and responsiveness:  The primary complaint clients express is “my advisor does not respond to me in a timely manner, or sometimes at all.”  In most instances, these issues can be resolved via a few simple quality control efforts.  First, do you have a communication policy statement (much like an investment policy statement) that defines how you will communicate with your clients by segment?  Setting the expectation with your clients about how often and for what purpose you need to communicate can make a world of difference, yet we rarely see it in writing.  Setting response criteria will also reduce many client conflicts.  Helping them understand what are high, medium, and low priorities will help them better appreciate your cadence of response.  Several metrics can be measured here including: speed of response, touchpoints per client segment, touchpoints targeted vs. touchpoints completed.  Additionally, such metrics can be correlated to increases in client satisfaction scores (i.e. NPS), increases in client retention, and decreases in client complaints.

   
   

2. Fee transparency:  I think the parallel we can use to appreciate clients’ frustration with understanding payment structures for financial advice is the healthcare industry.  If you have ever received an invoice for a procedure and hospital stay you know very well that you have no idea what you actually paid for or why.  I would argue clients feel the same about their quarterly statements from their advisors.  In my discussions with clients what they pay is rarely the issue, they want to better understand why they are for paying it.  A commitment as an advisor to ensure every client understands their fee structure not just from a dollar and cents standpoint, but from a value received standpoint is an aspiration that will greatly differentiate your business from the competition.  An added bonus of this is it will most likely force you to simplify your fees and drive greater efficiency in your operation.  Remember, this has nothing to do with discounting your fees, it has everything to do with better communicating your worth and the value you provide.  Over the long-term, creating a better understanding of fees can create additional lifetime client value.

   
   

3. Creating More Informed Clients:  As our understanding and application of behavioral finance continues to evolve, the benefits of clients making better and more informed financial decisions grow in both scale and scope.  One of the major complaints client surveys and conversations reveal is that oftentimes they feel as if their advisor is trying to give them the answer, rather than allowing them to make their own decisions.  This approach to advice was more widely accepted by The Greatest Generation and Baby Boomers.  However, the next generation of clients (Gen X and Millennials) has an extremely negative opinion of this approach.  They want advisors who present options and allow them to make their own decisions.  While client education events are still a meaningful way of help educate clients on certain topics; they expend extensive amounts of money, planning, and time (both yours and your clients’).  Establishing a regimented system of education for your younger clients via podcasts, YouTube clips, and marketing letters is a much more efficient and cost-effective way to increase your clients’ financial acumen. Your job as advisor now becomes to create options that apply this education in a way that best aligns with your clients’ feelings, behaviors, and biases.  Most major marketing tools apply a myriad of analytics to what your share and can be correlated to increases in wallet share, revenue, and assets under management.  

Countless articles, reports, surveys, and studies have told us for years that client needs are changing, becoming more complex and more demanding.  Undoubtedly this is true. However, where others rush to add complexity and shiny new objects to their businesses, I suggest the inverse response: double down on the basics.  Be proactively engaged, be radically transparent, and be an enthusiastic educator.  Be undeniably human.  Be good where others are bad.