From the August 2004 issue of Investment Advisor • Subscribe!

FROM THE TACTICAL TO PRACTICAL- The True Meaning of Value

Have you seen those TV ads for Morgan Stanley? You know, the one where a man we assume to be the bride's father is giving a heartfelt wedding toast--and then he turns out to be the bride's financial advisor? How about the one where a man is peering in at the babies in the hospital nursery, bragging about the wonderful financial plan he has for the baby we assume to be his--and then he turns out to be the financial advisor to the baby's parents?

Then there's my personal favorite: The man and woman sitting on a beach at sunset. We assume the two people are married, but when the camera changes angles, it turns out that the man is the couple's financial advisor, and the husband has been sitting off-camera. The advisor says, "I think if we move a few things around in your portfolio, you could afford that dream home." You and I know the subtext: "Churn and burn, baby; I got to reach quota." But the unfortunate consumer sitting home watching the ad thinks that the advisor is a genius and wants someone just like him.

What are these ads doing to TV audiences? Besides sending a powerful visual message, they are appealing to our conscious and unconscious values--our conscious desire for more wealth, and our unconscious desire to seek trust, dedication, and intelligence.

The commercials are arguing that this "big company" financial advisor embodies these conscious and unconscious values. The Big Company has huge marketing budgets to attach value to its advisors' actions and win clients' trust and their money. Why is this a challenge to you? Because you can't reach a mass consumer audience. You have to do it one-on-one. You can't afford to hire Madison Avenue firms to create a sense of value that explains your actions. As an independent advisor, you have to do it yourself. You'll need to be more creative to show your value to your client.

Do you laugh this off and say, "I'm not worried--I have a better product or service!" Or are you one of those naive people who believes superior work will be recognized by its own merit? If not, are you doing something to fight back?

Unless you can show people your value, most people will take what you do for granted. If you do nothing, you run the risk of being judged and compared strictly by the activities you perform. Your stockbroker competitors have no problem in this area because their role as facilitator has connected value to their actions. I recently received the following e-mail from a broker trying to get me to become a client. He listed names of companies, along with an opinion about whether to buy, hold, or sell the companies' stocks, and his predictions for their future stock prices:

Williams-Sonoma hit our sell list on Monday. Bought and mentioned here a month ago, the company reported same store holiday sales up 3.7%, which seemed a bit thin, and I took a very modest profit. I also sold for a better gain our stock in Interactive, which we received in a buyout of our positions in Lending Tree. The quality of the acquiring company is paramount and we achieved growing positions in HSBC Holdings (HBC-$80), the large British bank, through buying Household, the old-line consumer lender. I expect we will see an increasing number of large buyouts this year as corporations take advantage of low interest rates to expand and diversify.

His epistle went on like this for 10 more paragraphs. It was mind-numbing, and I'm sure this broker will probably earn more money on the transaction fees than I would earn following his advice. Can you see why people are impressed by this sort of thing? They have no way of assessing what's real and what's not.

That's one reason the big Wall Street firms have such huge marketing departments, with hundred-million-dollar budgets inventing new products almost daily. Today, hedge fund of funds; tomorrow, the world?

Most of us base our buying decisions on cost and how much we get for our money, so we naturally equate value with activity. But when it comes to financial advice, this equation is wrong. Maybe the problem is that we have overused the word "value"--the word itself now has no value.

The Wrong Path

What many advisors do when they want to "differentiate" themselves from their competitors is to deluge customers with claims about providing more products, more functions, more frequent statements, more personalized service, and so on, and finally topping it off with some "value-added" clich?.

This unknowingly locks you into being judged based on your activities. You end up dancing 'round and 'round like one of those little poodles wearing a tutu trying to get a bone. But the bone is always just out of reach.

Experience Counts

So how or where do you provide value if not through activities? You focus on the client's experience. Michael Lane, director of advisor services for TIAA-CREF, shared a story of his personal experience that really brought home this point. Michael recounted his recent relocation to Charlotte, North Carolina. "Since my wife and children had never been there, I wanted their first impression to be a great experience, so I splurged on a reservation at the Valentine Resort, one of the highest-rated hotels in all of North Carolina. They sent us a beautiful brochure."

Michael had asked the hotel to ensure the accommodations would be ready since he and his family would be arriving late at night and they were bringing three children, one of them an infant. When they arrived, there was no valet and no bellman; there wasn't even anyone behind the front desk.

Michael parked the car, and he and his wife struggled to get their bags and the children up to the room, only to find that the beds weren't ready. It was now 11 p.m. and Michael had an early meeting scheduled for the next morning, so he placed an advance room service order for breakfast. He was encouraged when breakfast was delivered on time, but they forgot Michael's breakfast and most of the silverware. Now he had to make a choice between finding something to eat or getting to his meeting on time.

Then when it was time to leave, Michael had to carry all the family's bags down himself. As he passed through the lobby, he spotted three bellmen standing around talking to each other. Michael drove the car up to pick up his family and the luggage and went back to the desk to check out. Once again, there was no one there. The three bellmen were still talking to each other 10 minutes later when someone finally showed up to check Michael out. Even though the hotel was visually appealing and advertised all the amenities anyone could want, they were of little or no value to Michael.

Consider this concept of value from the perspective of an investor. Instead of concentrating on cloning your ideal client or adding to your list of products or capabilities, first take the time to find out what kind of experience the investor values. It's in their experience that you find the real juice--and probably the definition of value.

Making the Switch

How do you convert from an activity-oriented to value-oriented practice?

Sit down with your clients, and define their idea of a successful outcome. Then get agreement up front on what the outcome is worth to them--both quantitatively and qualitatively. And, most important, establish your direct contribution to that outcome. This is where a written Investment Policy Statement can be used to get agreement up front on the process that will be used to reach the outcome. As long as you demonstrate you are adhering to that process, the issue of activities is no longer the benchmark. The client focuses on the process.

Some prospects aren't interested in value; they're only interested in activities and costs. These are not the clients you want. Let them stay with their brokerage relationships. You should concentrate on transforming your marketing effort from one of pursuit (based on your track record or number of activities/products you offer) to one of attraction based on value. This means you need to take the time to connect your value with your marketing message.

Examine how you communicate your value and skills. Write out what you do step by step, as if you were explaining how to change a tire. Delineate how you invest money, structure assets, educate families, insure business risks, and plan for succession. Explain the solutions offered by estate planning.

Connect your value with your message. Instead of figuring out how to reach as many people as possible with your services or ideas, put that energy into communicating your message--making sure that it doesn't go in one ear and out the other. You want your message to make an impact, and to stick in your client's memory.

Build personal experiences into your messages. The next time you're sitting in your office and are about to tell a prospect why they should hire you, try relating a story that shows why. You can find stories everywhere. The best ones often come from family members.

My example comes from the day my dad retired. After 30 years of hard work, two wars, and many personal sacrifices, he handed my mother a pension check for $400. "This is it?" she cried. She actually pulled on the check in an attempt to make it stretch. "This is what they expect us to live on?"

Tears filled her eyes as if she had suddenly realized an irreversible mistake. My dad hung his head, dropped his shoulders, and walked out of the kitchen. I felt her pain and his bitter disappointment, but at the time I didn't understand there was anything they could have done differently to prevent this scene in the first place.

My dad had trusted the system, depended on someone else's plan for his retirement, and ended up working as a security guard at K-mart until the day he died. I supplemented my parents' income as well, but they had never learned how to invest, and the consequences followed them for the rest of their lives.

When it comes to making a point, nothing beats a personal story.

Larry Chambers spent 10 years as a broker before becoming an author and founder of Credibility Marketing, which helps clients attract rather than pursue clients. He can be reached through www.competitiveforce.com.

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