The Biggest Trap Advisors Face When Marketing Themselves

With the growth of financial planning and the CFP certification over the past decade, just doing comprehensive financial planning is not the differentiator it once was. As technology commoditized first investment transactions, and now increasingly the basic elements of diversified portfolio construction, advisors are forced in the direction of providing more holistic financial advice to add value to the relationship. While this is ultimately a plus for consumers, it also means that providing financial planning services to consumers is a much more crowded, competitive space than it was just a few years ago.

In response to a more challenging environment, many advisors have doubled down on their efforts to be generalists, seeking to cast a wider marketing net in the hopes of attracting more prospects to become clients. Unfortunately, it’s not clear whether such efforts really result in more clients, or simply more marketing work for the same, or even inferior, results. After all, it only takes a few advisors becoming specialists to attract away key potential new clients, to the point where each specialist may only be able to grow within his/her niche while the generalists can’t grow at all. The end result is that the advisor sees even more prospective clients but gets fewer actual clients.

Accordingly, the real key to turning around the trap of the wider marketing net is to recognize that for a business that is already undifferentiated and struggling to grow, casting an ever-wider net will not result in more clients and business. Instead, the key to differentiation is to turn around 180 degrees, and become more focused and specialized, to truly become the best-in-class for a particular type of clientele that can be served effectively and profitably. While that might result in fewer prospects, real differentiation ultimately results in more actual clients, allowing advisors to grow their businesses smarter, instead of just working harder.

Plight of the Typical Advisory Firm

There was a point in time, not so many years ago, where being a comprehensive financial planner was a differentiator. In 2004, there were an estimated 340,000 people calling themselves a “financial advisor” according to Cerulli, but a mere 45,000, 13%, were actually CFP certificants.

Ten years later the landscape has shifted. The number of advisors has dipped down close to 300,000, and the number of CFP certificants is pushing 70,000, which means the percentage of advisors who are CFP certificants has nearly doubled over just a decade from to almost 23%. Arguably, the number of people who hold themselves out as comprehensive financial advisors and wealth managers is even greater, given the growth of the CPA/PFS designation, the emergence of new programs like the CPWA and the ongoing proliferation of other certification and designation programs (despite their varying degrees of quality).

Coupled with these trends is the challenging reality that many of the services for which financial advisors were once handsomely compensated are now being brutally commoditized by technology. It was “only” 20 years ago that most consumers had to actually wait for the newspaper to find out the price of a stock from the prior day, and call a stockbroker just to get a trade executed. Constructing a well-diversified portfolio was an even more complex affair. Yet the rise of online brokerage services and the expansion of the Internet had already driven the cost of executing stock trades down by ~90% 10 years ago, pushing advisors in the direction of constructing diversified portfolios instead. Yet now that service, too, is becoming commoditized, from the rise of sophisticated portfolio analysis and trading tools available directly to investors, to retail branches of online brokerage firms offering portfolio construction advice to a new breed of online “robo-advisors” like Betterment and Wealthfront that can craft, implement, and monitor a high-quality passive strategic portfolio for a mere 0.25% or less.