I listened to a lecture recently on business strategy. It was a rollicking good talk on competition and business positioning. And halfway through, the obvious hit me: Advisors have a hard job. Most of the various strategic forces being discussed are lined up against the advisor.
Some of the concepts are difficult to put into an advisor framework-barriers to entry, for example. There aren't many new banks or brokerages sprouting as startups, but there's not as much preventing individuals from entering the field.
And since there are so many advisors out there, customers become powerful because they can always take their business elsewhere. And competition is intense. In fact, the threat of new competition is supposed to be mollified by having a known brand name behind you. But for advisors, that may actually be a detriment these days.
It wasn't all bad news. There really aren't many "substitutes" for financial advise, unless you consider inertia an option. There is indeed the chance that customers will simply do nothing, but that's not really in the spirit of substitute services.
The one element where advisors can help themselves is in making the clients less likely to leave. In a purely strategic sense, it means you're reducing their power to find a different situation for themselves. For an advisor, that requires creating an environment that clients don't want to leave. And usually that means offering more services that make them more likely to stay. It's not a new concept. Banking analysts have been using phrases like "wallet share" and "sticky relationship" for years now.
The advisors we write about in this month's cover story on small business embody all those ideas. Writer Lauren Barack speaks with advisors who court small business owners as clients. Those advisors all talk about the issues of managing business and personal assets at the same time. And by sitting at the vortex of their personal and business lives, that makes them more strategically valuable to clients.
Even if the client's business and personal assets are not commingled in the same checking account-such as a one-person shop may be-they are heavily intertwined and have a major impact on one another.
Read about the client who sold some family land when the business hit a rough spot. Or the two brothers who owned a steak house and wanted to open a seafood restaurant. Their advisors looked at all possibilities to raise capital-not just business loans but also their home equity, life insurance plans and even 529 college savings plans.
That commingling of business and personal issues becomes magnified in a family business with multiple generations involved. Barack talks to one advisor who walked into a family meeting just after the father announced that the sons would be in the business, but not the daughters-and then let the advisor field questions.
Awkward family moments aside, these advisors are strategically positioning themselves to be essential to the business owner for both corporate and personal financial advice.
It's not just the cover story. When you look at our coverage through a strategy lens, you'll begin to see a narrative thread in a number of our articles. In this issue alone, you'll find strategy surfacing a number of times.
Take those competitive forces-please. In our FrontLines story, Associate Editor Margarida Correia delves into a new source of competition for advisors-from brokerages formerly described as discount. They still focus on their bread-and-butter discount market, but companies like Schwab and E*Trade are offering added services that put them more in direct competition with traditional advisors.
Need more examples? Take a look at the back of the magazine. Our Production story and the Careers story are both broadly centered on client-focused strategy-how to get them and how to focus on the most important. The Careers story has specific advice on how to close a sale (complete with a quote from the best sales closer of all time, Alec Baldwin in Glengarry Glen Ross). And the Production article picks up where Careers leaves off, detailing how to segment your client base so that you can give the best service to your best clients. (Do you know off the top of your head which clients are worth thousands of dollars per year to your business and which ones are worth less than a hundred?)
It also gives you some strategies on how to cull the bottom segment, if that's what you decide to do.
Another way to strategize is to separate yourself thoroughly from competition. And while that's easy to talk about, it's harder to execute when you work in an industry with more than 300,000 people who do the same thing you do.
But there happens to be a golden opportunity at the moment centered around the issue of trust.
Regardless of whether you feel the now-famous op-ed piece from a former Goldman Sachs employee decrying corporate greed reflects a genuine change of heart or is more likely a ham-handed attempt to wash away professional regrets, the issue of trust is once again front and center.
Some may be tempted to paint this as a fiduciary issue. But that's missing the forest for the trees.
Most investors would be hard-pressed to explain the differences between the two standards of care. And once explained to them, it would sound like a distinction without a difference. But they do know shoddy service once they've experienced it.
To argue otherwise would imply that investors should not complain of shoddy service from the likes of the big brokerages (or bank advisors) because, after all, they aren't fiduciaries.
Your clients may not be thinking that way, though. Most are likely to paint the entire industry with the same brush. And right now, that means they are wary of all advisors. And that, of course, gives you an opening to communicate more openly and gain their trust.
Advisors held to the fiduciary standard should not just rest on their laurels and assume clients will flock to them. And more to the point, advisors who use the suitability standard should not assume the worst. But you need to act because that trust could quickly evaporate.
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