by Tony Vidler
Talking recently with some institutional people the topic of differentiating, or competing successfully, in financial services was raised and I suggested that there were just 5 key areas that one must consider competing in.
To truly excel and outperform the competition I believe that you need to aim to be lead the market in at least 2 of the 5, and have to be at least “market average” in the others – you can’t lag or underperform in any of them without the risk of losing your market share. Getting any one of them horribly wrong can kill a business, but one doesn’t have to be a market leader in all.
In professional services the calibre of the people matter enormously. Technical knowledge, strategic capability, operational efficiency, investment decisions, systems adoption….all of the things which a business makes decisions upon which impact upon its efficiency and profitability are made by the people.
The quality of a firms people alone will often determine its ability to compete successfully. The best products, pricing and performance tend to not matter to the market if the people offering them are unreliable, untrustworthy, arrogant, dismissive, patronising or anything else which demonstrates behaviour that customers abhor. People make a great business, and people can kill a great business.
So the talent of the firm is a key competitive point. It is not simply the individual talent though: the culture which is created with the talent is a critical part of getting the “people” part right. Culture shifts and evolves either of its own accord, or as a result of decisions made by leaders of the organisation. The culture can be a positive or destructive force in itself….it can be the thing that enables an organisation to beat competitors, or one which hands market share to them.
How easy is it to place business with you? A simple question perhaps, but one which many businesses seem to overlook as a point of competitive difference. Consumers today place a premium upon speed and convenience. All other factors being equal they will always choose the easiest one to do business with.
I use the word “placement” here not for the sake of alliteration, but because every engagement with a consumer today involves them placing their trust with your firm, and ultimately placing an “order” or set of engagement instructions to become a client. That process of placement is sometimes a barrier to getting clients onboard at some firms, and it is an area where one can make deliberate choices to compete and differentiate. It can provide an advantage. For example, one local insurance company has an application process which averages 17 minutes. Do they have a competitive advantage over those firms which take 7 weeks? Absolutely!
Performance is measured differently across the sectors of the professional services landscape of course, however whether it is being judged on the basis of an absolute return on investment products, how an insurance policy responds to a client claim, or the effectiveness of a tax or estate planning strategy, a firm is judged on performance of product, service or strategy.
Whatever it is that a firm is promising to the market in the way of product, service or strategic performance the actual performance and delivery of the promise is a point of differentiation that can provide an advantage over competitors.
The easiest place to compete is in price of course, and it certainly is a competitive strategy for many professional services firms. Competing on price is not the same as competing by discounting though, as many seem to believe. There are many firms and professionals who successfully compete by charging far more than competitors, as they seek to appeal to a niche part of the market or a niche need, and price is a method of screening out segments of the market that they do not wish to attract.
The danger for those choosing to compete on lower or lowest price, as many brokers in particular try to do, is threefold:
More often than not however, while pricing may be an area where one chooses to compete, it is an area where one can choose not to compete and merely sit in the middle of the competitive pack. It is not an area where one has to lead the market, but is one where you may choose to, although it is not without its dangers.
This is the area which raised most eyebrows during my recent discussion. “Pay” as a point of difference?
Whether we are considering an institution and its commission or brokerage terms, or whether we are considering a planning firm charging clients directly, the quantum and the type of remuneration can attract or repel clients just as it can attract or repel talent for the firm.
Isn’t the biggest argument in the world of financial services the issue of conflicted remuneration for fiduciaries? HOW one is paid makes a difference to an increasing number of consumers in many professional service areas. There are quite a number of professional firms now who have chosen “pay” as an area to be their lead point of differentiation in competition, and it appears to be working very well for them.
Whatever your views on the issue of conflicted remuneration models it is an area where one can differentiate and compete for clients if one has a clear strategy. Fundamentally one gets the behaviour that one rewards, so understanding what behaviours you want from your talent and clients can often be driven by how you construct remuneration and then market it.
The bottom line really is that if one wishes to compete well enough to deliver higher than average growth or performance then there are 5 key areas to consider for those points of difference. Be a market leader in 1 of them and you can do very well. Be a market leader in 2 of them, and get 3 others right enough, and you can build a firm which dominates its chosen market segment.