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April 02, 2015 at 09:19 AM
Industry news headlines seize our attention. Week to week, we hear and read about crises and catastrophes that are about to rock your world either now or very, very soon. Can these headlines be both compelling—and irrelevant?
Of course they can. Just as you counsel clients not to focus on every screaming stock market headline, you need to “step back from the ledge” about industry news.
Consider these recent headlines and quotes from industry publications. They are all real.
- Robo Advisors – On-line advice a growing threat
- Is your custodian secretly courting your clients for a direct relationship that doesn’t include you?
- DC execs see big changes from Administrations’ push for DOL Fiduciary Standard
- Obama picks fight with Wall Street Banks
- Asset based pricing experiencing rapid margin compression
- “If you have less than $100 Million AUM- you’ll likely have three options: change your business model drastically, join a billion-dollar firm or quit (perhaps retire)”
- “The vast majority of advisory firms have no economic value.”
If you were to read all these headlines or quotes in a single day and consider only the worst-case scenarios, the effect on your mood would probably be good for the local tavern owner, but nobody else. And once you’d settled your nerves, so to speak, you might be tempted to initiate changes to your business that might not be in your best interest.
So What’s Really Relevant?
To be sure, all of these headlines and quotes have some basis in fact. But they also feature a heavy dose of opinion, which makes for more interesting headlines.
For a few firms, the issues in the headlines above represent a clear and present danger to the health of their businesses, and finding the nearest exit might be the best option. For the vast majority of successful firms, though, the news is mostly irrelevant. So how do you know if you are among the few or the majority?
Let’s start with two steps for interpreting the news:
1) Put news in the appropriate context.
2) Harness the headlines to your advantage.
First, let’s put the news in context. Eye-catching headlines tend to fit into three primary categories:
- Consumer preference
- Competitor behavior/threats
- Compliance/regulatory changes.
Now let’s put them in context, one by one.
Consumer Preferences
Before you step onto the ledge, ask yourself: Is this news even marginally based on actual, documented changes in consumer preferences, or is it a thinly-reported “trend” story based on a few anecdotes?
Here’s what we know. The substantial trust gap consumers feel about corporations in general, and with financial services companies in particular, has been well documented by Harris Reputation Quotient polls (which are highly reliable) in recent years. The consumer self-serve movement is due, in part, to the lack of trust in the financial services industry. All this is fact. Nevertheless, the question remains, does it directly affect your business?
In line with the Harris findings on corporate behavior and reputation, other research has shown that a majority of investors expect financial professionals offering fee-based advice to act in their best interests in all aspects of the financial relationship, and would not work with an advisor who did not do so.
What does this mean? Consumers are beginning to expect a fiduciary standard, even if they are not familiar with the terminology.
Then if an advisor is operating under a different standard of care, is their business is doomed? Likely not. But clients will expect a certain quality of service nonetheless, and an increasing percentage of clients and prospects may consider the standard of care when they evaluate the services you offer.
Conclusion: In this context, it makes sense to evaluate your service model to determine how closely it matches evolving expectations.
Competitive Threats
