Five Big Ideas to Gain an Unfair Competitive Advantage in 2020

On May 1, 2020, advisors and broker-dealers will have to file their new Form CRS – the disclosure form that the Securities and Exchange Commission is mandating for everyone who provides investment advice. Personally, I think this was a cop-out (why not require everyone who provides investment advice to register as an RIA?), but the bigger problem is that the disclosures are structured in a way that will make brokerage firms appear to be just like fiduciary advisory firms.

This is compounded by the fact that the disclosures must include a link to a series of five videos narrated by SEC Chair Jay Clayton, who thinks that everybody in the business (broker or advisor) only provides investment advice, and never considers (in the videos, at least) that some of the fees that clients are paying go toward financial planning or other technical services.

If you’re a fiduciary advisor, you’ve already faced a playing field tilted toward the brokerage side. (When was the last time you bought a Super Bowl ad to tout the benefits of working with your firm?) Now your brokerage competition is going to be handing out SEC-sanctioned disclosure forms that say they have to act in a customer’s best interests, which emasculates the primary marketing advantage on your side of the field.

What to do? Carefully craft your Form CRS to state, somewhere on the form, that you routinely offer a “fiduciary oath,” pledging to act in the best interests of your clients. (You can find one here) And then I am going to make a recommendation that I have never made before.

You should advertise.

Your advertisement could be as small as a quarter page in the local symphony’s program, or it could be a 15-second radio spot. It doesn’t have to be long or expensive. It just has to say something like:

Chances are you’ve heard about all the many scandals involving Wall Street brokers. When we give expert investment and financial planning advice, we put your interests first and back it up by signing a fiduciary oath. Is your broker or advisor willing to put that commitment in writing? Click or paste this link to see the promise we make to be your best financial advocate.

In addition, your form CRS is supposed to encourage people to go to the FINRA “broker-check” site to check out your firm. Include, in your form CRS or in an addendum that you also hand to prospects and clients, a link to broker-check with some advice:

Type these names into the second box at the top of the broker-check form, and see if any of those firms have had any regulatory histories. You’ll see the number of regulatory issues, infractions, fines or lost arbitration cases on the upper left-hand side of the page: (And then type in the name of the brokerage offices up and down the street.)

Merrill Lynch, as an example, has 108,719 results. Wells Fargo has “only” 74,841. Deutsche Bank: 12,673. Goldman Sachs: 23,776. FINRA makes you really dig to find the actual infractions, but the numbers deliver a message on their own.

Chances are your firm has zero infractions on the report.

Winning the bear market

One of my laugh lines when I speak at conferences is to tell the audience that a bear market is coming – and to remember that they heard it here first.

I’ll repeat it here in all seriousness: Your clients’ patience with their investment strategy is about to be tested, and that test is going to be a difficult one.

What am I recommending here? An all-out retreat to cash?

Of course not. You and I and all of the respected economists everywhere in the world have no idea when the bear market will hit (despite what they say on cable financial channels), and nobody has ever proven that trying to time the market is a winning investment strategy.

But you can win credibility in the marketplace by preparing your clients for a bear market that could be as bad as or worse than 2008. You can’t predict the scope of the downturn, but you can warn your clients that they could experience “tremendous buying opportunities” in the months ahead – while many other advisor firms are providing happy-talk in their investment commentaries.

And this is a good opportunity to get a dig in at the brokerage competition, reminding your clients (and inviting them to remind their friends) that in the last downturn, the brokerage firms nearly wrecked the global economy – that is, those that didn’t go out of business making reckless bets on the mortgage market. You can confess that you have no idea how their “creative” and self-serving behavior might impact the next downturn, but chances are it won’t be positive or helpful.

If clients express nervousness about the possibility of a downturn, then you’ve flushed out the people who will have trouble staying the course through a temporary 40% downturn, and you can invite them in for a conversation about reducing their equity exposure going forward. Remind other clients that the markets have been in bearish territory roughly 15% of the time since World War II, and there is no reason to think that percentage will decline in our modern times. This is simply how the market works.

You can show them how an investor who managed to stay the course through the 2008-9 downturn experienced a quadrupling of market value in the ensuing bull market. This, too, is a not an unexpected reward for patience during a stomach-churning drop.

You can ask clients, in your messages: Are you prepared for the next bear market? And invite them to ask the same question of their friends and neighbors. Offer to do a comprehensive portfolio review for clients, friends and neighbors, and be sure to have them mention your client risk-tolerance software to whomever they talk to.

Most advisors understand that bear markets can be a great marketing opportunity (do-it-yourselfers realize that they aren’t geniuses after all, and many customers get vexed when their broker or advisor stops contacting them as the downturn gets worse) – so turn this (however long) pre-bear market period into a marketing opportunity as well.

Clients may not contact you prior to the downturn. But you’re sowing seeds that will sprout when the bear market actually hits – and get a leg up on the competition.

Recalibrating your value proposition

You surely know that the investment-only value proposition is becoming increasingly fragile in the advisory marketplace, and it will become more so when the bull market finally ends. People who rely on their advisor for purely investment advice will start to wonder why they’re paying so much for negative performance statements. Maybe (they might wonder) they can lose money just fine without paying for the service.

It happens in every cycle: The center of gravity in the financial services profession gets a hard shove toward financial planning and even life planning during market downturns, and then gradually moves away from these labor-intensive services toward more profitable pure-investment service models as the next bull market ages. We are in the late states of this cycle, and advisors need to preemptively move back before their client relationships are challenged once again.

What am I recommending? True life planning starts with the very first meeting, where clients are surprised (astonished?) that you choose to ignore the shoebox full of statements or portfolio information, lean forward and ask the important questions. What is missing in your life right now? What would you do if you could afford it? What important goals seem out of reach to you now?

Or just: Tell me your story.

The best life planners use multiple initial meetings to help clients tease out the things they want to do and accomplish in their lives. Only then do they start to create a collaborative experience where client and advisor work together to create a financial plan. Let clients hold the mouse and explore the key levers: retiring earlier or later, spending more or less on retirement vacations, saving and investing more or less every month, etc., etc., and making their own bargain with the future.

Going forward (and this is a great exercise to bring existing clients closer to you and your service) ask them to name 30 goals that they want to achieve in the near term, anything from “have breakfast with the family” to “accumulate enough to feel comfortable in retirement.” Keep track of their goals, and the surprising thing you’ll discover is that, simply by writing down those goals, they will achieve quite a number of them on their own.

Track which ones they’ve achieved in your CRM (you do use one, right?), and provide clients with a performance statement that shows how many goals they’ve achieved and which ones are still to be accomplished. You might call them periodically and help them prioritize goals that have been on the list for a while and are not moving off of it as quickly as you both would like.

Clients value reaching life milestones a lot more than they value investment performance that is a point or two above the indices. You want to cement your existing client relationships and prepare in advance for the next great shift back toward planning and advice.

Clients are much more likely to refer you to their friends and neighbors when they enjoy the onboarding experience, and are allowed to participate in creating their own financial plan. Raise your hand if you get as many referrals as you believe you deserve for the quality of advice and service you offer your clients.

Wouldn’t you like to change that?

Creating client events that really make a difference

In my Inside Information newsletter, I’ve written about the best and least-known marketing trend. It’s still new enough that if you adopt it, you’ll stand out in your market. SignatureFD in Atlanta and RegentAtlantic in Morristown, NJ have defined market niches that they currently serve, and have begun creating one-day educational events for the community around that niche.

Come again? Jane Newton, at RegentAtlantic, formerly worked on Wall Street and learned first-hand the challenges that women face in that male-dominated environment. So when she moved over to the financial planning side of the fence, she collected some women executives who she knew over the years as clients.

Then she asked them: ”What kind of presentations would you like to hear, that would enhance your career and help you in your business life?” She was given some suggestions of successful women executives, executive search firms and life and business coaches, and so she invited those people to speak at a meeting that she (Newton) hosted.

The invitation was sent out to clients, and they were invited to bring their friends and colleagues. The program has blossomed since then to attract hundreds of people to each meeting, and there are now more than 700 members in the community.

Of course, not all of these women are Newton’s clients. But they have become prospects who Newton meets with regularly, who interact with people who are her clients, and whose lives and careers are visibly enhanced by Newton and RegentAtlantic. Newton learns more about her niche and the challenges they face with every meeting, and picks up clients almost incidentally as a result of the Wall Street Women Forums that she hosts and attends.

SignatureFD now has seven communities, including SignatureEntrepreneur, SignatureExec, SignatureHealth, SignatureGenerosity, SignatureLaw, SignatureWomen and SignaturePro (for professional athletes). The concept is much the same: Ask the clients in a particular niche to serve on an advisory board and help you determine who people like as speakers, host meetings and have your clients invite anyone and everyone who might be interested. Encourage everyone to invite their friends and neighbors, and build a community of prospects that you are directly serving and interacting with on a regular basis. Watch the community grow.

You can even do something like this without having a defined niche. An advisor in California I know wondered what it would be like to be retired. So he asked his retired clients, and quickly discovered that they hungered for interesting things to do with all their free time.

The solution? The advisor spent his marketing budget on fun activities, like group golfing lessons with a golf pro, wine tasting from different regions, regional bus trips, cooking classes with the chef from a high-end local restaurant – and invited select retired clients to invite some retired friends along. The events were small at first, but grew as the budget grew, and the budget grew as more people signed on as clients wanting to participate in these events.

Interestingly, there is now a group of pre-retirees who are attending similar events, so they can practice retirement and see how they would like to spend their free time when they decide to leave work.

This blend of client service and marketing looks like a great candidate to replace the traditional (and tired) client appreciation event – and energize your community outreach efforts.

Reach into the blue ocean

I was recently asked whether either the regulators or consumers were demanding that financial advisors change their revenue model – specifically from the industry-standard AUM to a monthly subscription, retainer or hourly fees.

The answer is “no.” Definitely not.

So why [I was asked] will the profession migrate, sooner rather than later, to those non-AUM models?

The answer is simple: 80% or more of the human population hasn’t accumulated enough assets to make it worth your while to work with them under an AUM arrangement. And some of those remaining 20% are people who want to manage their own assets, but would eagerly pay for financial planning and tax advice – if you could figure out a way to provide it to them.

It is easy to overstate this opportunity, and I don’t want to do that. I am not saying that if you switch out of AUM tomorrow, you will suddenly be able to work with 85% or 90% of all the people you see walking around in the streets. But for every qualified AUM prospect, there are five or 10 great prospects who want, need and are willing to pay for financial planning. That’s too great an opportunity to ignore.

Last year, in the column I referenced earlier, I made some suggestions about charging differently, based on the AUM fees you are charging now. Since then, I’ve had access to the great pricing work that Matthew Jackson (now VP of corporate strategy at LPL Financial in San Diego) has done over the past few years. I’ve polled my own Inside Information readers on how they track and allocate their time.

My best advice, with this new information, is to track the time it takes for your staff to perform certain services for clients, and to define a basic service model that you believe every client should have – the service you would offer to the proverbial “C” clients that you currently work with.

Once that service package has been defined, knowing how much staff time those services require, you have a good indication as to what to charge for your most basic package. (Be sure to build in a 40% profit margin.)

Step two: Define the additional services and conveniences that you currently offer to B clients, and get a good estimate for what they cost to deliver. Using that information, define your “B” package.

Finally, add premium services that you offer to your wealthiest clients, cost them out and create an “A” package. You can call them “A,” “B” and “C” or anything you want; the point is that you can now offer any person who walks in the door a choice: Do they want your basic services, an upgraded package, or your premium services? In each case, you can charge people who haven’t yet become wealthy an appropriate fee for what you’re providing.

But (you’re asking, what about my current clients? Won’t my “A” clients want to pay less for a “C” package?

Some will, and that may be appropriate, since there are probably wealthy clients who are no longer getting a lot of your time and attention. But at the same time, some of your less wealthy clients might want to upgrade to a more expensive package. And overall, this will help you control your time and internal costs much better than most firms are doing now. One of the things I learned from interacting with my Inside Information readers who are starting to track their time is that they are giving more time to clients who are paying them less than they are to clients who are paying them more.

This exercise creates internal discipline and has (for advisors who have adopted it) resulted in greater profitability. (If anybody wants a copy of the two primary articles I wrote on this subject, plus an excellent white paper covering some of the same ground, just send an email message to [email protected].).

All of my recommendations will help you cement your existing client relationships and build new ones in creative ways. My goal here is to help the best advisory firms take market share away from the non-fiduciary competition – to level a tilted playing field with your creativity and nimbleness. Let’s make 2020 the start of a new trend, where advisory firms do more and better (and more collaborative) planning, where they get more referrals and create communities of ideal prospects, where they drive financial planning deep into the middle market, and get out the word that there is a less conflicted alternative to the firms that advertise during the Super Bowl.

Bob Veres' Inside Information service is the best practice management, marketing, client service resource for financial services professionals. Check out his blog at: www.bobveres.com.

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