One of a Kind

By John Bowen

It's no secret that most financial products have become commodities. Despite the best efforts of the advertising departments of financial companies to distinguish their offerings from those of their competitors, it's still difficult to find real differences between many products. With few exceptions, one large-cap growth mutual fund is pretty much the same as the next.

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Given the commoditization of financial products, it's little wonder that investment advice itself is turning into a commodity. Just as large-cap growth mutual funds largely look like one another, many financial advisors are beginning to look like one another, too. Because they stake their value propositions on offering commoditized financial products, potential clients see little to distinguish one advisor out there from another.

A study last year by CEG Worldwide found that many advisors agree. Nearly six in 10 (57.1 percent) of the independent broker-dealer representatives we surveyed agreed with the statement that "investment management will be completely commoditized" in the next five years.

Advisors also know that this commoditization will make competition stiffer than ever. Among those surveyed, three out of four (75.1 percent) agreed that "competition for the best clients will increase exponentially."

Commoditization in the financial services industry isn't going to go away. The question is how you'll respond to it. You can take the old approach and continue to emphasize your ability to choose financial products for your clients—in other words, to distinguish among products that most think are largely indistinguishable.

Or you can take a different tack. You can focus on what clients—especially wealthy ones—most want. By doing so, you'll set yourself apart from your competition and will never be seen as a commodity. Instead, you'll be something that is difficult to replace: a trusted advisor.

To buck the commoditization trend, I recommend these five key actions.

1. Offer a compelling value proposition. Prospective clients are not looking for yet another financial advisor who can sell them the products with the latest bells and whistles. They are looking for advisors who can help solve their financial challenges. It's that simple.

The traditional investment generalist model, in which advisors offer a broad range of investment products—without the context of comprehensive financial planning—fails to address what's most important to clients. In contrast, the wealth management model provides real, enduring value to clients' financial lives. By attending to the many disparate parts of a client's financial life—not just investments, but also concerns about asset protection, wealth transfer, charitable gifting and much more—wealth management provides what clients most want. And it does it through a single, streamlined source: the wealth manager.

Bear in mind, though, that it's not enough just to call yourself a wealth manager. Even though it's all the rage these days, in fact relatively few advisors actually use a true wealth management model. One recent study of over 1,000 advisors found that fewer than one in 10 (8.4 percent) are actually wealth managers. Most—79.1 percent—are investment generalists, while 12.5 percent are product specialists.

2. Know your clients well—really well. To design optimal solutions for your clients, it's a given that you have to know them well. Nearly every advisor uses some type of fact-finding process, typically a checklist of questions about the client's investment goals, time horizon and risk tolerance. This type of process is adequate to help you recommend investment products, but it stops there. To truly differentiate yourself, you must dig much deeper to uncover your clients' dearest values, fears and aspirations. Here are a few examples of questions that an advisor committed to an in-depth discovery process might ask:

• What family member relationships (spouse, children, siblings, parents, etc.) are most important to you?
• When you think about your money, what concerns, needs or feelings come to mind?
• What pets do you have? How important are they to you?
• What is your opinion on taxes? What kinds of taxes bother you the most?
• What were your best and worst financial moves? What happened?
• Do you follow sports? What are your favorite teams?
• What charitable causes do you donate to? Volunteer for?
• What were your best and worst experiences with a professional advisor?
• What do you want to do for the world at large?

Questions such as these will not only help you design optimal investment solutions, they will also help you establish a bond of trust and the foundation for a long-term relationship.

3. Provide expertise to a specific market niche. Whether you're looking for an orthodontist for your kids, a veterinarian for Fido or a personal trainer for yourself, you want to work with experts. It's no different for prospects looking for financial advisors—they want to work with experts in solving their specific challenges.

Be the expert your prospects and clients want. Most financial advisors take every prospect who walks in the door. By working with many different types of clients, each with different financial situations and objectives, they never develop deep expertise in a single market. The schoolteacher with $75,000 in assets and the orthopedic surgeon with $1.8 million in assets may both receive competent advice, but neither will receive expert insight on their particular—and very different—situations.

Instead of opening your door to every visitor, be highly selective. Choose one niche market that you can serve extremely well and stick with it. Develop your expertise to address the specific needs of members of that niche and design your business to deliver the personalized service they would expect from an expert.

Doing so is critical to keeping your clients happy. In an industry survey of affluent clients, 75.3 percent of those who rated themselves as "very satisfied" reported that they received solutions that were well thought out and suited to their needs—far higher than the 41.9 percent of "very dissatisfied" clients who agreed.

Just as important, when clients see you as an expert—the single most qualified advisor to address their needs—they most certainly will not see you as a commodity.

4. Focus on the client relationship. It's worth repeating: Clients can go anywhere for investment advice and products. To set yourself apart—and keep their business—you need to build authentic relationships. The advisor-client relationship is, after all, the one thing that can never be commoditized.

Of course, a big reason why you're in this business is to help clients. You probably personally like most of them, if not all. And you probably consider yourself to be a client-centered advisor.

But is your focus truly on your clients? Answer these three questions:

1. How much of each workweek do you spend face-to-face with clients? CEG Worldwide has found that fewer than one in 10 advisors spend more than 60 percent of their time in front of clients. Most spend 30 percent to 60 percent of their time with clients, while more than a quarter spend less than 30 percent of their time meeting with clients. This means that the vast majority of advisors are not providing what their clients most want-their time.
2. How many contacts do you have with each client, each year? Our research has also found that the most satisfied affluent clients averaged 28 contacts with their advisors (in person, by mail and by telephone) over one year. Unfortunately, most advisors contact their clients much less often.
3. How often do you have in-person meetings with your clients? Years can go by before some clients ever set eyes on their advisors. Why wouldn't these clients turn elsewhere for assistance?

Remember that clients are looking for a trusted advisor. They want you—a real person who is there to guide them through life's changes and help them achieve all that is important to them. Investment performance plays an important part in client satisfaction, but is no more important than the quality of the advisor relationship.

5. Hold it all together with world-class service. Your final tool for bucking commoditization is top-notch service. This means delivering to each client a unique, memorable experience-one that differentiates you and your firm in a way that clients find unforgettable and competitors find difficult to match.

To do so, you need thoughtful, replicable processes that ensure that each and every contact between your firm and its clients is a positive one. When clients know they can expect every encounter with you and your employees to be high quality, you will have succeeded in truly separating yourself from most other advisors (and indeed, most other service providers) who provide an uneven, hit-and-miss client experience.

While it would be easy to see the growing commoditization in our industry as a threat, it actually offers you a huge opportunity. By taking the key steps that will effectively give your clients what they are most looking for, you'll stand out head and shoulders above the crowd.