(Original Article by David Leo on Advisor Perspectives: https://www.advisorperspectives.com/articles/2021/01/12/do-you-need-to-focus-on-differentiation)
I spend a lot of time studying about how financial advisors should differentiate themselves. But perhaps this is a waste of time for several reasons:
- Saying you are different is not meaningful. It proves nothing. The only thing that can differentiate one FA from another is what they deliver that the client values. Michael Kitces says, “differentiating on service is difficult because there’s no clear and consistent definition of what ‘great service’ even is. Especially since what is great service to one client may not be to another. What constitutes ‘great’ is truly in the eye of the beholder.”
- Does it matter if another firm or advisor does exactly what you do if what you do is delivered with excellence?
- Michael Kitces reports, “It’s incredibly difficult to use ‘great service’ as a differentiator. In fact, according to one recent study, 72% of all advisors differentiate on client service. By definition, when the majority of advisors differentiate on the same point, it’s not differentiating anymore!” It’s common for people to think what they do is above average. It’s called “illusory superiority,” a cognitive bias where a person overestimates their own qualities and abilities, in relation to the same qualities and abilities of other people. For example, AAA reported, “Despite the fact that more than 90% of crashes involve human error, three-quarters (73 percent) of US drivers consider themselves better-than-average drivers.”
Most important, as Blair Enns stated, “The challenge in determining the value of our service is that the quality of an idea not yet delivered (and implemented) is difficult to measure.”
Instead of thinking about and talking about differentiation, focus on delivering value, as defined by each client, and have the client decide whether your value is enough to choose you as her or his advisor.
As Kenichi Ohmae of McKinsey & Co. stated, “If you are fighting with a competitor who has equal qualifications, effective and persistent execution in critical functional areas may be the only differentiating factor.” I once heard a talk by Bill Gove who said, “When all else is equal, I make the difference.” Essentially, differentiation is a function of:
- Delivering what the client finds of value; and
- Having great relationships.
I have addressed what high-value deliverables are and outlined them in the document “What We Deliver.” This piece has several key points that should drive your practice. You:
- Provide comprehensive financial planning and wealth management.
- Focus on six core client-facing processes to ensure nothing is missed in securing your clients financial well-being.
- Provide a written client service model that provides a proactive and regularly scheduled contact plan with 24/7/365 availability to your team.
In addition, Mitch Anthony has defined six key value propositions of financial planning are that you can also provide. And, as Michael Kitces says, “while the words themselves are not necessarily new and unique, Anthony’s use of them, along with explanations of exactly what the advisor provides, and how, paint a remarkably clear picture of what the intangible service of financial planning is meant to provide, and why it’s worthwhile for consumers to pay for a financial planner.”
For those who have not seen them, they are as follows:
- Organization. We will help bring order to your financial life, by assisting you in getting your financial house in order (at both the “macro” level of investments, insurance, estate, taxes, etc. and also the “micro” level of household cash flow).
- Accountability. We will help you follow through on financial commitments, by working with you to prioritize your goals, show you the steps you need to take and regularly review your progress towards achieving them.
- Objectivity. We bring insight from the outside to help you avoid emotionally driven decisions in important money matters, by being available to consult with you at key moments of decision-making, doing the research necessary to ensure you have all the information and managing and disclosing any of our own potential conflicts of interest.
- Proactivity. We work with you to anticipate your life transitions and to be financially prepared for them, by regularly assessing any potential life transitions that might be coming and creating the action plan necessary to address and manage them ahead of time.
- Education. We will explore what specific knowledge will be needed to succeed in your situation, by first thoroughly understanding your situation, then providing the necessary resources to facilitate your decisions, and explaining the options and risks associated with each choice.
- Partnership. We attempt to help you achieve the best life possible but will work in concert with you, not just for you, to make this possible, by taking the time to clearly understand your background, philosophy, needs and objectives, work collaboratively with you and on your behalf (with your permission) and offer transparency around our own costs and compensation.
Finally, I recently came across an RIA firm that is reaching into some new areas to explore with clients that can add significant value. In addition to all the deliverables included in a comprehensive life-centered, financial planning and wealth management-based set of solutions, it also offers what they term, “engagement opportunities that inspire change.” This includes:
- “INSPIREDTalks” where they bring together a community of experts and influencers to share their professional knowledge and research surrounding the areas that support the client’s journey towards their best life. The talks relate to what they describe as, “the 11 dimensions of life,” such as family, emotional, intellectual, financial, physical, environmental, spiritual, social, fun and more
- Inspired Life™ Wisdom Share – a virtual Wisdom Share session to reflect upon the 11 Dimensions of Life including, learning how to cultivate new areas of expansion and share collective experiences.
- Inspired Life™ Conversation Circles – a client only conversation circle that allows small groups of individuals to meet.
Digging more deeply into life’s most important topics helps individuals focus on Mitch Anthony’s saying, “Living the best life you can with the money you have” and answering questions like,
- Why do you have money and what does it mean to you?
- What do you want your wealth to do for you?
- What’s your desired future?
- If you learned that you only had a short time left here on earth what would you do in the time you had remaining? Would you change your life? If so, how?
- What dreams do you have that are in danger of being left unfulfilled?
For most people, money for money’s sake is not living the best life you can.
David Leo is Founder of Street Smart Research Group LLC. He is an author, speaker, coach, consultant and trainer to financial professionals. David is an experienced business manager who works solely with Financial Advisors, Planners and firms who want to organize, structure & grow their businesses by attracting, servicing, and retaining affluent clients.