The 10 Ways Advisors Can Crush Their Competition

Nobody wants to compete in a commodity business, where the only path to survival is to be the low-cost provider. But many advisors are heading straight down that poisonous path – driven there by the robo industry that has commoditized investment management. Here’s how to ensure you are not a victim of commoditization.

Charging 1% or 2% annual fees is becoming less and less common. Robo advisors charge between zero and 0.25% annually. If the client wants human interaction, they can choose from the likes of Vanguard Personal Advisor Services and pay 0.30% annually or Schwab Intelligent Advisory at 0.28% annually.

What worked in the past is a thing of the past.

To embrace change, here are 10 ways to differentiate your practice. I’ve taken them from my financial planning practice which, I’ve been told, is about as different as any practice could be. Though all of these aren’t right for every advisor, you can choose which are right for you.

  1. Hourly fee model. Financial services fee models are moving from commission-based to fee-only AUM models. The hourly fee-only model, however, is rare. The Garrett Planning Network was doing it long before I launched my practice. In 2016, I asked then Vanguard CEO Bill McNabb whether the future of financial advice was going to be hourly and agreed with his response – “it took a long time for the industry to transition from commission to the percentage of assets model and another transition soon was unlikely.”
  2. Build simple portfolios. Both robo and human advisors build complex portfolios. Why? Because it creates the illusion that investing is complex and shouldn’t be done without expert advice, an illusion with which I completely disagree. I’ve seen very few portfolios outperform the three-fund second-grader portfolio designed with my son when he was eight years-old. Its simplicity is one of the main reasons it is currently the best performer among the 8 Dow Jones Lazy Portfolios. Why then, if simplicity is so awesome, do clients need me? Because there are many complexities in beyond simplicity, such as tax planning, penalties, gated redemptions, etc. It’s not easy to keep things simple.