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Financial Planning > Behavioral Finance

Are Financial Planners Failing to Set Themselves Apart?

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As financial planning continues to grow as a profession, consumers increasingly have more and more access to qualified advisors. At the same time, the growth in the number of financial planners is leading to a troubling counter-trend; the more financial planners there are, the less differentiating it is to simply be a financial planner. As a result, while in the past financial planners might have competed primarily with stockbrokers, insurance agents, and do-it-yourselfers, now they’re increasingly competing with… one another. The trend is only exacerbated by the fact that large firms are increasingly steering their advisors in the same direction as well.

The outcome of this trend is a rising new pressure on advisors to focus and find a niche to establish true differentiation from theor competition. Realistically, no one advisor can be the best at everything for everyone, but it is possible to be the best for a particular group of clientele, with a genuinely unique value proposition unlike what any other advisor provides. The efficacy of this approach will only increase as search engines become better and better at helping to match people in need of help with the providers who can offer them the best solutions.

While most planners fear that establishing a niche will make the “pie” of potential clients smaller, the reality is that most advisors already take only a very, very tiny slice of their current pie, and for many the size of that slice is shrinking. By establishing a focus to the business, it creates a scenario where the size of the pie may be smaller, but the advisor has the potential to capture the entire pie! Viewed another way, 100% of something is a whole lot better than 0% (or 0.00001%) of everything. Ultimately, the point is not to turn away prospective clients who don’t fit your niche; it’s to have a niche that’s so well established that the only people who contact you are those who seek you out for your niche. There are so many, there isn’t time to serve anyone else, anyway!

Stiffer Competition for Financial Planners

As little as 10 years ago, a client-centric CFP competing for a client might have been going up against a wirehouse stockbroker, an “old school” insurance agent and a do-it-yourself online brokerage platform solution. Today’s landscape, however, has changed; it’s now increasingly likely that a good financial planner is going to be competing for clients with other good financial planners who might hold the CFP certification (and perhaps other specialized credentials as well), also operating as client-centric fiduciaries on an RIA or hybrid platform. The end result? Slower growth as firms find it harder and harder to explain how their services are truly differentiated from everyone else. The problem will only get worse as large firms mimic the approach as well; recent industry analysis by Cogent indicates that within just a few years, even 70% of wirehouse advisors will be operating on an assets-under-management basis, trailing only slightly behind RIAs. Unfortunately, though, most financial planners seem to still be operating under the “old” framework, as quickly becomes evident in viewing their websites and marketing materials. After all, how many advisors still use some version of the following as their differentiator: “We provide customized, individualized financial advice to our clients, delivered by well-educated, highly credentialed advisors who have several decades of experience.”

While the wording varies from one advisor brochure to the next, they all build around the same key points:

  1. Personal financial planning customized to the individual needs of their clients
  2. Advisors who have the CFP certification or some other professional designation/education
  3. Highly experienced after years/decades of working with clients
  4. In some cases, a  listed differentiator may include operating as a fiduciary.

Yet the reality, as just noted, is that these are no longer differentiators. In any direction you look, high quality client-centric financial advice is on the rise, and is quickly shifting from being a value-added differentiator to being expected just to have a shot at attracting a high-net-worth client! The number of CFP certificants is up almost 75% from a decade ago.

As the past 10 years have gone by, the average age of an advisor has increased, by almost 10 years, making “experienced” (with perhaps some gray hairs to show for it) remarkably common. According to Cerulli, fiduciary RIAs and hybrid advisors are the fastest growing channels, taking market share from wirehouses (even as the wirehouses shift their business models to mimic them). AWith regulatory efforts from both the SEC and the Department of Labor, a uniform fiduciary standard could soon become the law of the land.

While all of these trends are good news in that it lifts the standard of advice for consumers, it has also created a “be careful what you wish for, you might get it” scenario for advisors who have advocated for better advice for consumers: by lifting the standards for all, having higher individual standards in your own business are less and less often a relevant marketing differentiator.

In the second part of our post, we’ll discuss what it takes to find a new differentiator.