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April 01, 2003 at 02:00 AM
Good news! We are now officially in the worst stock market environment in the last 70 years. Most financial advisors are experiencing feelings “somewhere between moderate misery and extreme misery,” according to one pundit. Most investors are experiencing the same levels of misery, or worse.
The greed and malfeasance of the officers of some of America’s biggest corporations, the crisis of confidence in stock analysts’ reports, and the failure of auditors to effectively audit America’s investor reports have combined to create one of the biggest breakdowns in our industry since the Great Depression. In a recent article, Charles Schwab wrote, “In my four decades of working with individual investors, I have never seen such a profound crisis of confidence.”
But that’s all positive news. Why? Because according to chaos theory, the universal theory of change, major breakthroughs are always preceded by major breakdowns. Thanks to the current breakdown, we are now ready to usher in a new and better era for the investment industry.
Order Out of Chaos
According to chaos theory, when a system–whether financial, biological, or cultural–is functioning in an environment and that environment changes, the system undergoes stress and ultimately falls into regression. The French Revolution is a great example of this phenomenon occurring in a social system. We are now experiencing such a regression in the financial services industry. Once a system goes into regression, a catalyst can bring the system to a higher level of complexity. This higher level of complexity empowers the system to function harmoniously in the new environment.
After the Great Depres-sion, Congress created the SEC, which became the catalyst for the modern securities industry and the explosion of capital formation. World War II was a major breakdown in the world order. It was followed by an unprecedented explosion of creativity, wealth creation, and trade. The Marshall Plan was the catalyst that turned the breakdown into a breakthrough.
Our Breakthrough: A Client-Centered Industry
All industries go through three major phases. They start off by being very product-centered. During this phase, the emphasis is on getting the product manufactured and out the door. The engineers rule, and clients take a back seat. Henry Ford’s famous quote, “You can have any color Model T you want, as long as it’s black” perfectly defines this phase.
Once the initial demand has been satisfied by the industry, the focus shifts from manufacturing the products to distributing and selling them. During this stage, salespeople rule. The basic question asked by the industry is: “How can we sell more of these products?” The phrase “always be closing” defines this phase.
When the supply of products or services again meets the demand, the industry enters a third phase. When consumers have lots of options and experience, the power shifts from the manufacturer and the salespeople to the clients. In this phase, the clients rule because they write the checks. But no manufacturers or distributors have ever willingly moved to a client-centered business model; they’ve done it because they’ve had to. In the client-centered phase, the industry must answer a new question: “How can we better serve these people?” The automobile industry entered this phase in the late ’70s and early ’80s. We are about to experience it in the financial services industry.
When I got into the industry 22 years ago, I heard this old brokerage joke: “Well, the firm made money, and the broker made money–and two out of three isn’t bad.” As long as the firm and its salespeople were being taken care of, they did not care about the clients. Today, however, if you do not care about your clients and are not truly meeting their needs as they define them, you will go the way of the dinosaurs.
The old business model of packaging great stories and selling them to investors only to see them fail is broken. The industry needs to come up with a new business model that is based around serving the needs of clients.
Three Steps to Happiness and Success
Smart marketers know that it is much more effective to market the payoffs of a product than to market the product itself. Many current financial services TV ads focus on the payoffs of financial planning, but the industry itself is still focused on selling products. The industry must focus more on the payoffs the clients want from their money and less on the investments and processes themselves. This does not mean that you do not need a high level of competency. But technical competency must be in service to the client’s human needs.
As a coach, I believe there are three steps to achieving happiness. The first is to determine what will truly make you happy. The second is to create a written strategy to achieve your dreams, and the third is implement the plan you’ve created. Many investment advisors are good at helping people to devise plans and to implement them. Where they are lacking is in their skills to help people define what will create meaning in their lives in the first place.
